Chief Executive Offenders and Economic Crime: A Convenience Theory Approach 2022009169, 9781032298290, 9781032298306, 9781003302254

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Chief Executive Offenders and Economic Crime

This book examines the role of chief executives in white-collar crime from a convenience theory perspective. Privileged position status, legitimate resource access, institutional deterioration, lack of control and guardianship, and criminal networks such as cartels are some of the typical factors of opportunity convenience when chief executives commit white-collar crime. By presenting and discussing such factors, this book aims to clarify vulnerabilities in organizational settings when the deviant chief executive takes advantage of their position for criminal means. The book applies convenience theory to explain a variety of cases of corporate crime committed by chief executives. The work will be a valuable resource for academics and researchers in the areas of criminology and criminal justice, law enforcement policy, business management, and organizational behavior. Petter Gottschalk is professor of strategy in the department of leadership and organizational behavior at the BI Norwegian Business School in Oslo, Norway.

Chief Executive Offenders and Economic Crime A Convenience Theory Approach

Petter Gottschalk

First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 Petter Gottschalk The right of Petter Gottschalk to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Gottschalk, Petter, 1950- author. Title: Chief executive offenders and economic crime : a convenience theory approach / Petter Gottschalk. Description: New York : Routledge, 2022. | Includes bibliographical references and index. | Summary provided by publisher. Identifiers: LCCN 2022009169 | ISBN 9781032298290 (hardback) | ISBN 9781032298306 (paperback) | ISBN 9781003302254 (ebook) Subjects: LCSH: White collar crimes. | Chief executive officers--Psychology. | Criminology. | Criminal behavior. Classification: LCC HV6768 .G6847495 2022 | DDC 364.16/8--dc23/eng/20220223 LC record available at https://lccn.loc.gov/2022009169 ISBN: 978-1-032-29829-0 (hbk) ISBN: 978-1-032-29830-6 (pbk) ISBN: 978-1-003-30225-4 (ebk) DOI: 10.4324/9781003302254 Typeset in Galliard by Taylor & Francis Books

Contents

List of illustrations Introduction 1 Trusted Individuals

viii ix 1

Fairness of Perceived Trust 3 Felt Trust and Actual Trust 5 Trust in Religious Institutions 7 Efforts in Repairing Trust 10 Trust Depending on Gender 13 2 Chief Executive Officers

17

CEO Power and Influence 17 Trust in the Chief Executive 23 Accountability of the CEO 25 CEO Role and Behavior 27 3 White-Collar Offenders

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Classic United States Offenders 34 Fraud Investigation Reports 35 Narcissistic Norwegian CEO 37 Offender-Based Perspectives 39 Corporate Crime Seriousness 42 4 Theory of Convenience Crime Convenience Orientation 54 Financial Possibilities and Threats 56 Organizational Opportunities 59 Offender Deviance Willingness 62

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vi Contents 5 Privileged Position Status

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Position Status Characteristics 75 No Attribution of Blame 77 Untouchable Heroic Celebrities 78 CEO Language and Humor 80 Organized Irresponsibility 82 6 Legitimate Resource Access

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Resource Characteristics 87 Resource-Based Perspective 88 Legitimate Access 89 7 Institutional Deterioration

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Organizational Moral Decline 93 Dysfunctional Mirror Networks 96 Concerted Organizational Ignorance 97 Narcissistic Identification 99 8 Control of Guardianship

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Lack of Oversight in Agency 105 Lack of Whistleblowing Willingness 107 Misleading Crime Attribution 108 Crime Signal Detection 109 9 Criminal Network Member

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Corporate Cartel Activities 113 Corporate Corruption Networks 115 Rule Complexity Collapse 116 Norwegian Cartel Convenience 118 10 Research Propositions

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Motivational Crime Themes 123 Opportunity Crime Themes 126 Willingness Crime Themes 131 11 Industry Effects Corporate Crisis and Scandals 143 Stigma and Competition Effects 145

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Internal Fraud Examiners 146 Non-Accused Organizations 146 Transparency Corruption Index 150 Conclusion

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Index

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Illustrations

Figure 4.1 Structural model of convenience theory

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Table 11.1 Investigation reports by fraud examiners

147

Introduction

Trust is an important contribution to the convenience of white-collar crime. Trust is the acceptance of vulnerability to another’s actions (Baer et al., 2021). Dearden (2016) argues that violation of trust is at the core of white-collar crime opportunity. Trust implies that vulnerability is accepted based upon positive expectations of the motives and actions of another. Controlling a trusted person is often considered both unnecessary and a signal of mistrust. In many cultures, the opposite of showing trust is to monitor and question what a person is doing. For example, a board can tell management what to do, but they do not tell them how to do it. The board shows trust that management will do it in an acceptable manner. If the board were to move from only controlling what management has done to how management did it, then it might be perceived as mistrust. Berghoff and Spiekermann (2018: 291) argue that all economic transactions depend on a certain degree of trust, without which transaction costs would simply be too high for economic activity: White-collar criminals abuse the good faith of various stakeholders, from customers to the general public, from shareholders to the authorities. Therefore, white-collar crime often coincides with the breach of trust. The study of trust is concerned with what it is, what causes trust, and what effects can come from trust. Trust is a dynamic phenomenon in a relationship between the person who is trusted and the other who trusts the person. Trust is a matter of expectation causing willingness and intention to be vulnerable if necessary. These are some of the issues discussed in Chapter 1. Chief Executive Officers (CEOs) typically enjoy substantial individual freedom in their professions with little or no control. The CEO is the only person at that hierarchical level in the organization. Below the CEO, there are a number of executives at the same hierarchical level. Above the CEO, there are a number of board members at the same hierarchical level. But the CEO is alone at his or her level. The CEO is supposed to be controlled by the board, but the board only meets once in a while to discuss business cases. This is the initial perspective in Chapter 2.

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Introduction

The offender-based definition of white-collar crime is presented in Chapter 3. The definition has its origin in the work of Sutherland (1939), who defined whitecollar crime based on the social and occupational status of the offender as a crime committed by a person of respectability and high social status in the course of the offender’s occupation. The offender-based definition emphasizes some combination of the actor’s high social status, power, or respectability as the key features of white-collar crime (Benson et al., 2021), as well as the violation of public trust (Sohoni and Rorie, 2021). Convenience theory emphasizes financial motives, organizational opportunities, and personal willingness for deviant behavior, as presented in Chapter 4. The following chapters discuss characteristics of organizational opportunities for chief executives: privileged position status (Chapter 5), legitimate access to resources (Chapter 6), institutional deterioration (Chapter 7), lack of control and guardianship (Chapter 8), and participation in criminal networks (Chapter 9). These chapters are the core of the book as they explain the special convenience for trusted chief executives in white-collar crime. Based on previous chapters, Chapter 10 develops the following research propositions for chief executive offenders in convenient economic crime: Proposition 1a. As personal greed increases, financial crime will seem more convenient for a chief executive in a trusted position. Proposition 1b. As personal strain increases, financial crime will seem more convenient for a chief executive in a trusted position. Proposition 1c. As commitment to ambitious business goals increases, financial crime will seem more convenient for a chief executive in a trusted position. Proposition 1d. As threats against the existence of the enterprise increase, financial crime will seem more convenient for a chief executive in a trusted position. Proposition 2a. Higher social status for a chief executive in a trusted position is associated with greater convenience of committing financial crime. Proposition 2b. Increased ease of access to crime resources for a chief executive in a trusted position is associated with greater convenience of committing financial crime. Proposition 2c. Organizational decay in the form of institutional deterioration is associated with greater convenience of concealing financial crime for a chief executive in a trusted position. Proposition 2d. Organizational chaos in the form of lacking overview and guardianship is associated with greater convenience of concealing financial crime for a chief executive in a trusted position. Proposition 2e. Market collapse caused by rule complexity, cartels, crime networks, state reluctance to intervene, and other factors is associated with greater convenience of concealing financial crime for a chief executive in a trusted position. Proposition 3a. A conveniently oriented chief executive in a trusted position with a stronger deviant identity has a higher level of willingness to get involved in financial crime.

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Proposition 3b. A conveniently oriented chief executive in a trusted position with a stronger rational mind where perceived benefits of crime exceed perceived costs has a higher level of willingness to get involved in financial crime. Proposition 3c. A conveniently oriented chief executive in a trusted position with a stronger differential association to deviant individuals has a higher level of willingness to get involved in financial crime. Proposition 3d. A conveniently oriented chief executive in a trusted position with a stronger ability to justify wrongdoing has a higher level of willingness to get involved in financial crime. Proposition 3e. A conveniently oriented chief executive in a trusted position with a stronger ability to deny guilt has a higher level of willingness to get involved in financial crime. The final Chapter 11 discusses the effects of executive deviance in one organization on other organizations in the same industry. Both the stigma effect and the competition effect might occur depending on the extent of product market overlap and the extent of white-collar and corporate crime in the nation. Bibliography Baer, M.D., Frank, E.L., Matta, F.K., Luciano, M.M. and Wellman, N. (2021). Untrusted, overtrusted, or just right? The fairness of (in)congruence between trust wanted and trust received, Academy of Management Journal, 64 (1), 180–206. Benson, M.L., Feldmeyer, B., Gabbidon, S.L. and Chio, H.L. (2021). Race, ethnicity, and social change: The democratization of middle-class crime, Criminology, 59 (1), 10–41. Berghoff, H. and Spiekermann, U. (2018). Shady business: On the history of white-collar crime, Business History, 60 (3), 289–304. Dearden, T.E. (2016). Trust: the unwritten cost of white-collar crime, Journal of Financial Crime, 23 (1), 87–101. Sohoni, T. and Rorie, M. (2021). The whiteness of white-collar crime in the United States: Examining the role of race in a culture of elite white-collar offending, Theoretical Criminology, 25 (1), 66–87. Sutherland, E.H. (1939). White-collar criminality, American Sociological Review, 5 (1), 1– 12.

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Trusted Individuals

A trusted individual is having the acceptance of vulnerability by another party to that individual’s actions. Trust manifests to the individual as an attitude, such as relying on the judgment and ability of the individual or depending on the individual for assistance with important issues (Baer et al., 2021). Trust implies that vulnerability is accepted based upon expectations of the motives, actions, and outcomes of the individual’s behavior. Vulnerability is the increased inability or lack of ability to withstand the negative effects of the individual’s behavior. Vulnerability s the diminished capacity to anticipate, cope with, resist, and recover from the impact of the individual’s behavior. Kim et al. (2009: 401) define trust as “a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behavior of another”. The positive expectations can relate to what another does, how it is done, and when it is done. The positive expectations can relate to the reaction of another, where it is expected that the reaction will be understandable, acceptable, and favorable. Vulnerability means that trust can easily be violated without detection or correction of deviant behavior. As argued by Dearden (2016: 89), vulnerability implies a state in which someone may be hurt or otherwise taken advantage of: Trust is a critical component of social exchange. The reliance of individuals on an exchange or transaction that provides them with some resource also creates vulnerability. As trust increases, risk taking increases due to more resources being allocated to a trustee, as well as expectations from the trustee. Therefore, trust and social exchange increase together. Expectations create a norm or way in which the trusted individual is supposed to act. Trust is thus associated with dependence and risk (Chan et al., 2020: 3): The trustor depends on something or someone (the trustee or object of trust), and there is a possibility that expectations or hopes will not be satisfied, and that things will go wrong. Trust is not absolute, but conditional and contextual. DOI: 10.4324/9781003302254-1

2 Trusted Individuals The term trustor refers to the individual whose trust has been strengthened, unchanged, or violated since he or she is in the position of evaluating the trusted or mistrusted party and assessing the trusted or mistrusted party’s behavior. The term trustee refers to the trusted or mistrusted party since he or she is the target of the trustor’s trusting beliefs, intentions, willingness, expectations, and behaviors (Kim et al., 2009). Chan et al. (2020) distinguished between three kinds of trust. Characteristicbased trust involves trusting someone on the basis of their membership in a certain family, community, or culture. Institution-based trust relies on rules, ethics, or professional standards to infer trustworthiness. Process-based trust is premised on loyalty, commitment, and routinization. Just as the concept of trust is relational, such that trust inherently requires a target, so too is the concept of felt trust relational. It is the felt trust that can influence an individual’s tendency to crime, while it is the actual trust that is part of the opportunity structure for crime. The gap between the two represents how accurately people understand others’ perceptions of them (Campagna et al., 2020: 994): The concept of felt trust reflects what the more general interpersonal perception literature refers to as a dyadic meta-perception – one person’s belief about the thought, attitude, or perception held by another person. There is a difference in the research literature between willingness, intention, and behavior when those terms are applied to define trust. While Yip and Schweitzer (2015) define trust as the willingness to be vulnerable to exploitation based upon positive expectations, Campagna et al. (2020) define trust as a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another, and Baer et al. (2021) argue that trust manifests itself by behavior. For example, in a knowledge organization such as a law firm, law firm partners may have the intention of trusting the managing partner and the chief executive officer, while at the same time making sure that their own clients and the related business is out of reach for both of them (Apistola and Gottschalk, 2012). Rather than willingness, intention, or behavior by the trustor, Fleckenstein and Bowes (2000) defined trust from the perspective of expectation by the trustor. Trust, then, is the trustor’s expectation of being the recipient of the trusted party’s good will. Trust is the expectation that arises within a community of regular, honest, and cooperative behavior, based on commonly shared norms, on the part of other members of that community. Controlling a trusted person is often considered both unnecessary and a signal of mistrust. In many cultures, the opposite of showing trust is to monitor and question what a person is doing (Veltrop et al., 2021). For example, a board can tell management what to do, but they do not tell them how to do it. The board shows trust that management will do it in an acceptable manner. If the board would move from only controlling what management has done to how management did it, then it might be perceived as mistrust.

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This chapter presents some important research studies that contribute to our understanding of trust as a phenomenon, construct, and concept. The first one by Baer et al. (2021) asks whether there can be fairness between trust wanted and trust received. Campagna et al. (2020) discuss the relation between felt trust and actual trust. The overreliance on trust in religious organizations is discussed by both Fleckenstein and Bowes (2000) and Uygur (2020). Finally, trust repair is discussed by both Eberl et al. (2015) and Kim et al. (2009).

Fairness of Perceived Trust Baer et al. (2021) studied the importance of the fit between trust wanted and trust received. They suggest that when trust received exceeds or falls short of an individual’s desire for trust, the individual as the trustee perceives the trustor as less fair. They built a model in which the overall fairness perceptions resulting from the trust wanted–received interplay influence individual performance, where perception is reality (Harrison et al., 2020). They defined trust as a willingness, or intention, to accept vulnerability to another individual. Trusting intentions are not readily apparent, given that they are an internal phenomenon. Accordingly, an individual must infer the level of others’ trust by observing the others’ trusting behaviors. Trusting behavior is a credible demonstration of trust and hence a definitional realization. As others engage in behaviors that evidence a willingness to be vulnerable, the individual receives information on the extent to which they are trusted. Based on two empirical studies, Baer et al. (2021: 198) found that being overtrusted or being under-trusted are both perceived as unfair: Being trusted can be a positive experience that contributes to satisfaction, commitment, and performance. It is intuitive, therefore, that theoretical and practical treatments have emphasized the positives of being trusted for employees and their organizations. Yet, this prescription may rely on an untenable assumption – that all employees want a high level of trusting behaviors from their supervisors. Drawing on seminal theorizing from the fairness literature, we argued that for employees who want a lower level of trusting behaviors, a high level of trusting behaviors would be perceived as a failure to perceive their needs, contributing to the sense that the supervisor who “over trusted” them behaved unfairly. Our results across two studies supported our proposal. We found that these lowered perceptions of fairness had detrimental downstream effects on employees’ in-role and extra-role performance. This research finding is interesting, as prior theorizing on trust only has suggested that over-trusting is a problem or challenge for the one trusting. The trustor becomes exposed to more vulnerability when over-trusting someone else. The trustor thus becomes exposed to potential exploitation, harm, and suffering. Previous research has not mentioned that over-trusting might be a problem or challenge for the trusted individual as well.

4 Trusted Individuals The research finding regarding fairness of perceived trust levels also applies to lower levels of trusting behaviors as undesirable only if there is a lack of fit (Baer et al., 2021: 198): Our results suggest that a lower level of trusting behaviors is not inherently perceived negatively by employees. Rather, in our study, lower trust received was only detrimental when it did not match trust wanted. As expected, congruence between trust wanted and trust received had the most beneficial impact on perceptions of the supervisor’s overall fairness, even when trust wanted and received were both lower. The research finding implies that, when it comes to being trusted, a consideration of the individual’s needs rather than a sole focus on absolute levels of trusting behaviors is important. Furthermore, as emphasized by Baer et al. (2021: 199), the operationalization of the concept of trust should focus on behavior rather than intention: Accordingly, our research contributes to the trust literature by indicating that scholars should take care to match the operationalization of trust – intention or behavior – to the research question. This is particularly critical for research on being trusted, given that measuring supervisors’ actual behavior, rather than their intentions, may be a more precise way to capture the phenomenon. The research by Baer et al. (2021) is important as it questions the prevailing wisdom that trusting in others at work leads to beneficial outcomes for the trusted individual and hence for the trustor and the organization. There are situations where trusting behavior can be detrimental to performance. Generally, trust is associated with a range of important outcomes, including teamwork and leadership effectiveness (Campagna et al., 2020). As discussed in the next chapter, the board of directors tends to offer the chief executive officer a very high level of trust that may reduce CEO commitment to the business and loyalty to the board if the high level of trust is incongruent with the level of trust wanted. Fairness of perceived trust as the discrepancy between wanted trust and trust received is influenced by the extent of innocence versus guilt for a transgression. If the trustee feels innocent, while the trustor finds the trustee guilty, then under-trusting will result (Kim et al., 2009: 408): Given that a trust violation is based on the premise that a trustee has committed some form of transgression, perhaps the most comprehensive way in which trust can be repaired is by affecting the extent to which this premise is ultimately deemed to be true (i.e., on a continuum ranging from definitively guilty to definitively innocent). An under-trusted individual can challenge the trustor’s belief that the trustee committed the transgression or in any way is responsible for the transgression. A

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trustor, however, is likely to resist such innocence-claiming efforts in favor of maintaining a belief in the trustee’s guilt (Kim et al., 2009).

Felt Trust and Actual Trust The study by Campagna et al. (2020) was concerned with felt trust and actual trust. The researchers studied whether leaders such as chief executives feel trusted by employees, and whether their felt trust is accurate. While Baer et al. (2021) studied trust from above, Campagna et al. (2020) studied trust from below, when an organization is viewed as a pyramid of people. The convenience of white-collar crime by the CEO is dependent on trust from both board members above and the leadership below. However, the potential discrepancy between feeling trusted and being trusted by others might be a problem for the offender. Even worse for the offender is the potential discrepancy between expected trust and actual trust. Some chief executive officers have narcissistic traits where they expect and require a high level of trust. We return to the issue of narcissism in the next chapter. Returning to the issue of felt trust versus actual trust studied by Campagna et al. (2020), felt trust refers to the degree to which a person believes he or she is trusted by another person. Felt trust by a chief executive officer is the leader’s belief that a given subordinate is willing to make himself or herself vulnerable to the leader. Both felt trust and actual trust reflect an interpersonal phenomenon. Campagna et al. (2020) conducted two field studies. The first study was a collection of survey data from leaders and employees of a large state department in the United States. The researchers needed to constrain the length of the leader survey because the leaders were asked to respond to several items for each of their subordinates. The researchers chose to draw a sample of five randomly selected employees per leader. A typical example of an item for a leader was: Employee X feels secure in having me make decisions that critically affect him/her. A typical example of an item for a subordinate was: I feel secure in having leader X make decisions that critically affect me. Research results indicate that there was a slight average tendency for leaders to underestimate how much an employee trusts them. However, the median value for this variable of difference between felt trust and actual trust was zero, suggesting that the tendency of underestimation by leaders was not obvious. More important, however, was the finding of deviation that indicates misalignment between felt trust and actual trust in terms of both underestimation and overestimation. The second study was a collection of survey data six weeks apart from a different organization. In contrast to the first study, there was a slight tendency for leaders to overestimate how much their employees trusted them. However, as in the first study, the median value was zero. The study found no support for leader narcissism and social astuteness that seems frequently suggested in other studies (Campagna et al., 2020: 1007):

6 Trusted Individuals In Study 2 we sought to conceptually replicate and extend the findings of Study 1. With respect to the antecedents of leader trust meta-accuracy, we examined an expanded set of conceptually similar characteristics that are implicated by the external pathway, as well as again tested the presumed reciprocity mechanism implicated by the internal pathway. Our findings largely corroborated those of Study 1. We again did not find evidence in support of the external perspective. Leader social astuteness, leader narcissism, and the frequency of interactions between a leader and an employee were not related to leader trust meta-accuracy, and the role of employee impression management behavior was the opposite of our prediction. Reciprocity of trust is assumed to stimulate social interaction. However, a trusted individual who feels mistreated might reciprocate by behaving in a manner that harms the source of this mistreatment (Gibney et al., 2009). Restoring the perception of equity and equality might also be a matter of responding to dehumanization, which is a feeling of being a tool or an instrument based on a perception of treatment as lesser than or different from others (Bell and Khoury, 2016; Väyrynen and Laari-Salmela, 2015). On the other hand, the organization provides trusted employees with material and socio-emotional rewards in exchange for their work effort and loyalty (Cropanzano and Mitchell, 2005). The researchers predicted the role of employee impression management behavior to cause a leader to overestimate an employee’s trust. The empirical result was the opposite of this prediction. The researchers had formulated a number of hypotheses (Campagna et al., 2020): 







Employee self-monitoring is negatively related to dyadic leader trust metaaccuracy, such that higher employee self-monitoring results in a leader overestimating an employee’s trust. This hypothesis suggesting that employee selfmonitoring would be negatively related in terms of overestimation was empirically not supported. Leader perspective taking is positively related to dyadic leader trust metaaccuracy, such that higher leader perspective taking results in a smaller discrepancy (i.e., absolute difference) between a leader’s felt trust and employee’s actual trust. This hypothesis suggesting that leader perspective taking would be positively related to leader trust accuracy was empirically not supported. Dyadic leader trust meta-accuracy is a function of presumed reciprocity, such that an employee’s trust in a leader is positively related to a leader’s felt trust indirectly through a leader’s trust in the employee. This hypothesis suggesting a relationship between a leader’s felt trust and an employee’s actual trust through the leader’s trust for the employee was empirically not supported. The frequency of leader–employee interaction is positively related to dyadic leader trust meta-accuracy, such that a greater frequency of interaction results in a smaller discrepancy (i.e., absolute difference) between a leader’s felt trust and employee’s trust. This hypothesis suggesting effects of employee-leader interaction frequency was empirically not supported.

Trusted Individuals 









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Leader social astuteness is positively related to dyadic leader trust meta-accuracy, such that greater leader social astuteness results in a smaller discrepancy (i.e., absolute difference) between a leader’s felt trust and employee’s trust. This hypothesis suggesting leader social astuteness effects was empirically not supported. Leader narcissism is negatively related to dyadic leader trust meta-accuracy, such that higher leader narcissism results in a leader overestimating an employee’s trust. This hypothesis suggesting leader narcissism effects was not supported. Employee impression management is negatively related to dyadic leader trust meta-accuracy, such that higher employee impression management results in a leader overestimating an employee’s trust. As mentioned above, this hypothesis was not supported. Rather, the empirical result was the opposite, where higher employee impression management results in a leader underestimating an employee’s trust. Dyadic leader trust meta-accuracy is negatively related to relationship conflict when employee trust is high, but positively related to relationship conflicts when employee trust is low. The study indicates that relationship conflict is higher when a leader’s felt trust accurately reflects an employee’s actual trust. This empirical result runs counter to the hypothesis that accuracy would be more beneficial than inaccuracy. However, since the relationship here is not linear, there was support for the idea that there is higher relationship conflict when a leader accurately perceives that an employee’s trust is low, compared with when a leader accurately perceives that an employee’s trust is high. A leader’s overestimation of an employee’s trust produces increased relationship conflict compared to a leader’s underestimation of an employee’s trust. This hypothesis was empirically not supported as the amount of relationship conflict was similar between leaders who overestimated and leaders who underestimated an employee’s actual trust.

Campagna et al. (2020) used the term meta-accuracy, which is a combination of the terms meta-perception and accuracy. Meta-perception is one person’s belief about the thought, attitude, or perception held by another person. Accuracy is the extent of the match between felt trust and actual trust.

Trust in Religious Institutions Uygur (2020) studied fraud in the charity sector in England and Wales. He analyzed 42 fraud and 42 no-fraud charities. His findings suggest that excessive trust towards the charities creates the opportunity for fraud to take place. Is there too much trust, too much freedom, too much individual authority, too little skepticism, too much loyalty, and too little control of leader activities in religious organizations? The religious organization Pentecostal Church in Norway was hit by a scandal when several members blew the whistle on Stephan Christiansen who was one of the church leaders. Quickly, the issue of trust emerged in the media when

8 Trusted Individuals Christiansen, after the accusations and allegations, was promoted from a leader position in Norway to a leader position in Europe (Larsen, 2021: 8): – Should it have anything to say for the assessment of Christiansen as a leader? – It is very important that there is a way back and forward for Christian leaders. It should never be at the expense of people who have reported or experienced violations, but I register the tensions it has created this time. The only thing we can say is that we must ensure the quality of the processes and improve communication with those concerned, says Øystein Gjerme, head of the Pentecostal executive council. – Should not renewed trust presuppose that a case has been handled in a sufficiently good manner? – We work to ensure quality routines so that the way back to renewed trust will be responsible and good. Gjerme emphasizes that it is Pelle Hörnmark, leader of the Pentecostal European Fellowship (PEF) who has given the new responsibility to Christiansen […] – I am aware of the criticism and see no reason to doubt people’s experiences. But the most important thing for us has been whether Christiansen has trust in the Norwegian Pentecostal movement to which he belongs, and that they have handled the case. I spoke openly about the challenges with Øystein Gjerme and Ingunn Ulfsten, and they came to the conclusion that Christiansen had their trust within the framework we had agreed on. – Many say they have had painful experiences due to Christiansen’s leadership. What do you think about the signal that is sent to them, when he gets a trusted role like this? – No matter what happens in people’s lives, they should get a second chance. Fleckenstein and Bowes (2000) phrased the question: Do members often betray trust in terms of white-collar crime in religious institutions? According to Owens and Shores (2010), most white-collar crime incidents are exploitations of trust, where trust may originate from a shared religious identity between the victim and the perpetrator. Shores (2010) phrased the questions: Are social religious networks an attractive arena for white-collar criminals? Is the morale of not acting illegally blinded from a chance perspective when an attractive opportunity arises? Or as suggested by Corcoran et al. (2012): Do shared religious beliefs lead to less acceptability of white-collar crime? Religious institutions belong to the sector of not-for-profit organizations where trust is crucial in all relationships. Uygur (2020: 226) found evidence of excessive trust in the sector: Excessive trust – belief that those involved with charities would not do terrible things because they are trustworthy and nice people – was suggested by many respondents to be one of the most important vulnerabilities leading to fraud in the charity sector. The respondents argued that the level of trust in the

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for-profit sector is low and therefore the controls are harsher whereas the excessive and unconditional trust towards charities makes them seem to be an easier target for the perpetrators. It was also posited by some respondents that charities seem to care less about procedures and policies, and these are not often put in place because the sector is reliant on trust: “That’s why fraud is taking advantage there because it’s easy to take advantage of somebody when they trust you. It’s a fact, it’s human nature.” Excessive trust, both inside charities and trust towards the charities, was found by Uygur (2020) to be an important reason for fraud in the charity sector. Lack of power for beneficiaries, excessive trust for donors, and absence of definitive owners were found to be the main reasons for ineffective oversight. Excessive trust that makes it easier for fraud to take place was found to be specific to the charity sector, and this makes the sector particularly vulnerable. Excessive trust promotes unethical behavior (Yip and Schweitzer, 2015). Heaton (2006) found no empirical evidence for the proposition that religion has a deterrent effect on crime, although sociologists and criminologists have long recognized the potential links between religious belief and delinquent behavior. Hofmann et al. (2014) found that religious and non-religious participants did not differ in the likelihood of committing moral and immoral acts, or in the quality of the acts committed. Some perpetrators may argue that it is the will of God, and therefore they can violate the law. Some religious individuals portray themselves as more moral than others (Arnesen, 2014). Valland (2015) reported a case of a father and son, where the son was a pastor in a church as well as employed in the Norwegian military. Both father and son were indicted of having swindled the military of several million Norwegian kroner. The father was accused of setting up a fake company from which the son bought and paid for fake services to the military. Similarly, Thompson and Schmitt (2007) reported the case of Major Cockerham who was active in the New Friendship Baptist Church. The congregation in the church celebrated Cockerham’s last promotion with a parade. At his son’s baptism, he told fellow worshipers that he hoped to instill in his children the values he had wrested from his hardship. Cockerham was sentenced to 17½ years in prison for accepting bribes from army contractors (Thompson and Schmitt, 2007). Fleckenstein and Bowes (2000) told the story about the comptroller of the Catholic Diocese of Buffalo who was charged with the embezzlement of eight million dollars of money belonging to the Diocese. The offender was subsequently convicted and served several years in state prison. A newspaper story had revealed that Anthony F. Frangione as the offender had purchased church property at less than market value and had used the church’s tax exemption for his own purchase. It was further revealed that his wife bought 36 acres of land for half of what the Diocese paid for it 25 years previously. Fleckenstein and Bowes (2000) suggested that trust should be understood as a fiduciary responsibility in religious organizations. A fiduciary responsibility implies putting others’ interests ahead of one’s own interests, with a duty to preserve

10 Trusted Individuals good faith and trust. A fiduciary obligation could fall to the holder and user of special knowledge, skill, or position with respect to other members of the social order. Fleckenstein and Bowes (2000) discuss the question of justice versus mercy in religious organizations. Many religious institutions tend to focus on forgiveness. The focus on mercy can distort the reality of white-collar crime and even encourage it. Religious institutions tend to focus on God’s forgiveness as well as forgiveness by the observer as a moral obligation for the observer. There is a humanitarian attitude towards crime, where crime happens accidentally or because of a disease to be healed. The criminal needs help and support, and, in that process, the criminal needs trust.

Efforts in Repairing Trust Kim et al. (2009) studied the repair of trust by examining the cognitive and interpersonal processes through which people resolve differences in their interpersonal beliefs. They applied the definition of trust as a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behavior of another. Trust is composed of both trusting beliefs and trusting intentions, where the latter is influenced via the former. When positive expectations are violated, resulting in reduced trust, then there is a need to repair trust. Trust violations concern incidents that lower trusting beliefs in and trusting intentions toward a trustee, while trust repairs concerns improving the trusting beliefs and trusting intentions that have been lowered by the trust violation. As argued by Kim et al. (2009), traditional approaches to trust repair by the individual who has lost trust include apologies, denials, promises, excuses, reparations, legalistic remedies, and no response at all. However, as argued by Bundy and Pfarrer (2015), the effectiveness of such personal accounts depends on the match or mismatch between situational attribution of trust-reducing incidents and the chosen trust-repair message. Situational attribution of responsibility is assigned to the trustee by the trustor. When situational attribution is low, then the individual response might be more defensive. When the situational attribution is high, then the individual response might be more accommodative. While a defensive response accepts no or little responsibility for an incident, an accommodative response acknowledges the individual’s causal role in the incident. Denials and excuses are examples of defensive responses, while apologies and promises are examples of accommodative responses. Kim et al. (2009) emphasized that trust is a dynamic rather than static phenomenon. The level of trust might typically change over time depending both on the trustee and the trustor. While the trustee may cause change in the trustor’s assessment, the trustor may on his or her own re-evaluate the trustworthiness of the trustee. The assessment of trustworthiness is far from systematic. Rather, the assessment is susceptible to a host of social-cognitive factors. In this perspective, repairing trust is not simply evaluating the magnitude of the violation via an objective analysis and meting out the appropriate restitution.

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The initial level of trust depends on the culture. In some cultures, people meet each other for the first time with a high level of trust. Only disappointments can cause the trust to drop to a skeptical level. Similarly, repairing trust depends on the culture. In some cultures, positive statements of willingness and intentions are sufficient to restore trust. In other cultures, only changed behavior over time is sufficient to restore trust. In any event, it is not at the sole discretion of the trustee to repair his or her own trustworthiness. Rather, trust is a concept that is a characteristic of the trustor reflecting an opinion about the trustee. Trustworthiness is in the eye of the beholder, where at times the trustee does not realize a violation has occurred when trust has been violated in the eye of the trustor (Kim et al., 2009: 403): In such cases, the trust violation will not necessarily be followed by a trustrepair attempt; the latter may require that the trustee be informed of this need by the trustor (or third party). Furthermore, trust repair requires more than simply compensating for the negative expectations arising from a trust violation. Therefore, Kim et al. (2009) attempted to theorize the interplay of trustees wanting to be considered trustworthy, the inclination of trustors to believe that greater trust in their trustees is not deserved, and the efforts of trustors and trustees to resolve these discrepant beliefs. They developed a multilevel model of the dynamic bilateral process through which the repair of trust may be pursued. While the research by Kim et al. (2009) was purely theoretical, the research by Eberl et al. (2015) on repairing trust was empirical. They reconstructed the corruption case of Siemens AG, which faced the greatest bribery scandal in the history of German business. One research result was that tightening organizational rules is an appropriate signal of trustworthiness to demonstrate serious intent to prevent integrity violations in the future. The study by Eberl et al. (2015) was on the organizational level rather than the individual level. Nevertheless, some of the reflections and insights are relevant for the individual level as well. The research started by reflecting on three sources of trust: ability, integrity, and benevolence. These three dimensions of trustworthiness are commonly seen as antecedents of trust. The relationship between integrity and trust involves the trustor’s assessment of the trustee adhering to a set of principles that the trustor finds acceptable. The extent of integrity is dependent on consistency with past actions that complied with preceding promises. The promises must adhere to principles that are perceived as acceptable by the trustor. Only if the principles are morally acceptable in the eyes of the trustor will integrity be attributed. Whether or not the individual adheres to his or her own principles and whether or not these principles are acceptable depends on the trustor’s subjective moral judgment. As such, different trustors can arrive at different and even contradictory attributions in relation to the integrity of an individual. The research by Eberl et al. (2015) continued by reviewing various approaches to trust repair after integrity violation. A distinction is often made between verbal

12 Trusted Individuals claims and more substantive actions. Verbal claims such as denials and apologies tend frequently to be applied in the face of integrity problems. Denial of wrongdoing, obfuscation, and responsibility are typical verbal claims initially by the individual who has suffered loss of trust. In an apology, the offender admits to violating a rule, accepts the validity of the rule, and expresses embarrassment and anger at self (Benson, 1985). Substantive actions include measures that are controllable, which means that the causes of the violation can be identified and remedied (Eberl et al., 2015: 1207): In this vein, rule adjustments are an immediate and highly visible signal that old behavioral norms are inappropriate and will be replaced by new ones. Especially when tighter rules are implemented, stakeholders may assume that the previous misbehavior will be avoided in the future. Together with a sound monitoring and sanctioning system, tighter rules signal that immoral behavior is unacceptable and that offenders will pay a price. Especially the latter perspective of sanctions is important for a trusted individual. When losing trust, the individual might demonstrate new sanctions that can harm him or her, as new sanctions have already had consequences for other previously trusted individuals in the organization. A typical sanction is the four-eye principle for a trustee, which implies that a trusted individual is allowed to do nothing unless a colleague approves the action. The popular choice of strengthening the formalistic compliance function in organizations is no substantive action (Eberl et al., 2015: 1207): Internal rule adjustments have the potential to signal a voluntary willingness to change the moral standards of an organization, whereas simple compliance with external legal requirements may prove less effective. Legalistic remedies do generally have little effect on integrity when they are inconsistent with individual and cultural values. Trust cannot be re-established by formal, legalistic measures. Instead, the value inconsistencies have to be addressed directly. However, in a short-term perspective, the approach of window dressing by a strengthened compliance function might temporarily contribute to trust repair. Window dressing is the act or the instance of making something appear better than it actually is. Formal control mechanisms are a window-dressing approach that might reduce trust (Eberl et al., 2015: 1207): For some scholars formal control replaces or even diminishes trust. It is argued that extensive monitoring undermines trust. Formal control may create stress and therefore negatively affect trust. Others, who claim that trust and formal control complement each other, at least implicitly, emphasize the importance of formal organizational rules in ensuring consistent behavior. It is argued that organizational rules define normative expectations, thereby providing a feeling of certainty and guidance for interactions between organizational members. Following

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this thought, commonly accepted rules are fundamental for trustworthiness since they make behavior more predictable. Eberl et al. (2015) studied trust at the organizational level. They found that organizational rules are a double-edged sword for repairing organizational trust after an integrity violation. The refinement of organizational rules might signal to trustors the willingness of an organization to change its behavior and prevent integrity violations in the future. However, those working at Siemens who were directly affected by these rules experienced such measures as problematic.

Trust Depending on Gender Research suggests that women are seldom suspected of white-collar crime. The lack of suspicion can derive from gender differences in trust when it comes to misconduct and crime. A major advantage for women in white-collar crime is thus the lack of suspicion when something goes wrong. Women avoid suspicion for two main reasons. One reason is that women pretend to be more morally robust and ethical in their behavior. For example, female board members talk most often about ethics (Dodge, 2007). The other reason is that women involved in conspiracies with others tend to play hidden minor or supporting roles rather than exposed leadership roles (Goncharov and Peter, 2019). It seems that women have a more trusted status compared to men. Status here is an individual’s social rank within a formal or informal hierarchy, or a person’s relative standing along a valued social dimension (Kakkar et al., 2020). Status is an actor’s relative position in a social hierarchy. Status differences lead to opportunity variations based on one actor’s acknowledgment that the other is entitled to certain privileges (Han et al., 2017). The female status seems more based on trust as compared to the male status. The status of women can derive from their relationships with others in organizations as social arenas (Brands and Mehra, 2019) by use of female influence tactics (Smith et al., 2013). The survival and success on the glass cliff is dependent on female influence tactics. Smith et al. (2013: 1161) suggest that communal tactics are genderspecific tactics for women, which include collaboration, consultation, and indirect use of sexuality, personal appeals, exemplification, supplication, and ingratiation: Ingratiation can be defined as the use of behaviors designed to increase the target’s liking or to appear friendly to gain compliance or support. Supplication is employed when one elicits nurturance or obligation from a target through self-depreciation or claims of helplessness. Exemplification involves eliciting target guilt or awe through behaviors such as self-denial or helping. Personal appeals are employed when one entreats the target’s sense of loyalty or friendship to gain compliance or support for one’s own desired outcomes. The indirect use of sexuality as an influence tactic involves subtly, but intentionally, using one’s sexuality to gain favor from others. This tactic can include wearing perfume or provocative clothes and flirting. Consultation entails

14 Trusted Individuals seeking the advice or participation of others. Finally, collaboration involves offering assistance or resources in exchange for compliance. Indirect use of sexuality was found in a study by Kenny and Donnelly (2020) of how women, outnumbered and outranked, navigate work and careers in information technology. Women exhibited femininity and were perceived as more moral than men. This perception of women makes it less likely that females are suspected of misconduct and crime. The status of women can be the result of support from a successful predecessor who was in favor of gender diversity and inclusion at the highest level. Dwivedi et al. (2018) suggest that the predecessor’s post-succession presence on the board can guarantee status and trust for a woman in CEO succession. They found that the form of predecessor support is unique to women. A third status advantage for women is the relationship between self-reliance and leadership evaluations. Schaumberg and Flynn (2017: 1859) found that self-reliance relates positively to leadership evaluations for women, but not for men: We find that self-reliant female leaders are evaluated as better leaders than selfreliant male leaders are. In contrast, we find a male advantage or no gender advantage for dominant leaders or leaders who are described positively, but not in terms of any discrete agentic trait. Consistent with expectancy violation theory, the female advantage in the relationship between self-reliance and leadership evaluations emerges because self-reliant female leaders are seen as similarly competent, but more communal, than self-reliant male leaders are. A fourth status advantage for women is subordinates’ potential perceptions of fairer treatment compared to male leaders when it comes to pay systems. Abraham (2017) found evidence of less gender pay inequality for employees reporting to a female manager. Manager gender had the implication in his study that female managers use the discretion afforded to them by less formalized pay systems to pay male and female employees more equitably than do male managers. The equity perspective here thus explains how an individual can express more trust and feel more loyal to a female manager than a male manager (Briscoe and Joshi, 2017). A fifth status advantage for women is the female ability to listen to people to a greater extent than men do. Powerful women take the floor less than powerful men (Brescoll, 2011). By listening rather than not talking at colleagues and subordinates, women signal involvement and empathy.

Bibliography Abraham, M. (2017). Pay formalization revisited: Considering the effects of manager gender and discretion on closing the gender age gap, Academy of Management Journal, 60 (1), 29–54. Apistola, M. and Gottschalk, P. (2012). Essential Knowledge and Management Issues in Law Firms, Boca Raton, FL: Universal Publishers.

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Arnesen, H. (2014). Jasså, du trodde troen gjorde deg mer moralsk? (Oh, you thought your faith made you more morale?), daily Norwegian religious newspaper Vårt Land, October 11, pp. 30–31. Baer, M.D., Frank, E.L., Matta, F.K., Luciano, M.M. and Wellman, N. (2021). Untrusted, overtrusted, or just right? The fairness of (in)congruence between trust wanted and trust received, Academy of Management Journal, 64 (1), 180–206. Bell, C.M. and Khoury, C. (2016). Organizational powerlessness, dehumanization, and gendered effects of procedural justice, Journal of Managerial Psychology, 31, 570–585. Benson, M.L. (1985). Denying the guilty mind: Accounting for involvement in a whitecollar crime, Criminology, 23 (4), 583–607. Brands, R.A. and Mehra, A. (2019). Gender, brokerage, and performance: A construal approach, Academy of Management Journal, 62 (1), 196–219. Brescoll, V.L. (2011). Who takes the floor and why: Gender, power, and volubility in organizations, Administrative Science Quarterly, 56 (4), 622–641. Briscoe, F. and Joshi, A. (2017). Bringing the boss’s politics in: Supervisor political ideology and the gender gap in earnings, Academy of Management Journal, 60 (4), 1415–1441. Bundy, J. and Pfarrer, M.D. (2015). A burden of responsibility: The role of social approval at the onset of a crisis, Academy of Management Review, 40 (3), 345–369. Campagna, R.L., Dirks, K.T., Knight, A.P., Crossley, C. and Robinson, S.L. (2020). On the relation between felt trust and actual trust: Examining pathways to and implications of leader trust meta-accuracy, Journal of Applied Psychology, 105 (9), 994–1012. Chan, J., Logan, S. and Moses, L.B. (2020). Rules in information sharing for security, Criminology & Criminal Justice, published online, 1–19. doi:doi:10.1177/ 1748895820960199. Corcoran, K.E., Pettinicchio, D. and Robins, B. (2012). Religion and the acceptability of white-colar crime: A cross-national analysis, Journal of the Scientific Study of Religion, 51 (3), 542–567. Cropanzano, R. and Mitchell, M.S. (2005). Social exchange theory: An interdisciplinary review, Journal of Management, 31 (6), 874–900. Dearden, T.E. (2016). Trust: The unwritten cost of white-collar crime, Journal of Financial Crime, 23 (1), 87–101. Dodge, M. (2007). Women who commit white-collar crime, in: Pontell, H.N. and Geis, G. (eds.) International Handbook of White-Collar and Corporate Crime, New York, NY: Springer Science + Business Media, pp. 379–405. Dwivedi, P., Joshi, A. and Misangyi, V.F. (2018). Gender-inclusive gatekeeping: How (mostly male) predecessors influence the success of female CEOs, Academy of Management Journal, 61 (2), 379–404. Eberl, P., Geiger, D. and Assländer, M.S. (2015). Repairing trust in an organization after integrity violations. The ambivalence of organizational rule adjustments, Organization Studies, 36 (9), 1205–1235. Fleckenstein, M.P. and Bowes, J.C. (2000). When trust is betrayed: Religious institutions and white collar crime, Journal of Business Ethics, 23 (1), 111–115. Gibney, R., Zagenczyk, T.J. and Masters, M.F. (2009). The negative aspects of social exchange: An introduction to perceived organizational obstruction, Group and Organization Management, 34, 665–697. Goncharov, I. and Peter, C.D. (2019). Does reporting transparency affect industry coordination? Evidence from the duration of international cartels, The Accounting Review, 94 (3), 149–175.

16 Trusted Individuals Han, J., Shipilov, A.V. and Greve, H.R. (2017). Unequal bedfellows: Gender role-based deference in multiplex ties between Korean business groups, Academy of Management Journal, 60 (4), 1531–1553. Harrison, J.S., Thurgood, G.R., Boivie, S. and Pfarrer, M.D. (2020). Perception is reality: How CEOs’ observed personality influences market perceptions of firm risk and shareholder returns, Academy of Management Journal, 63 (4), 1166–1195. Heaton, P. (2006). Does religion really reduce crime? Journal of Law & Economics, 49 (1), 147–172. Hofmann, W., Wisneski, D.C., Brandt, M.J. and Skitka, L.J. (2014). Morality in everyday life, Science, 345 (6202), 1340–1343. Kakkar, H., Sivanathan, N. and Gobel, M.S. (2020). Fall from grace: The role of dominance and prestige in the punishment of high-status actors, Academy of Management Journal, 63 (2), 530–553. Kenny, E.J. and Donnelly, R. (2020). Navigating the gender structure in information technology: How does this affect the experiences and behaviors of women? Human Relations, 73 (3), 326–350. Kim, P.H., Dirks, K.T. and Cooper, C.D. (2009). The repair of trust: A dynamic bilateral perspective and multilevel conceptualization, Academy of Management Review, 34 (3), 401–422. Larsen, M.M. (2021). Fikk ikke svar etter Christiansen-varsel (Got no response after Christiansen report), daily Norwegian religious newspaper Vårt Land, June 22, pp. 8–9. Owens, E.G. and Shores, M. (2010). Informal networks and white collar crime: Evidence from the Madoff scandal, Social Science Research Network, https://ssrn.com/abstract= 1742363, 54 pages. Schaumberg, R.L. and Flynn, F.J. (2017). Self-reliance: A gender perspective on its relationship to communality and leadership evaluations, Academy of Management Journal, 60 (5), 1859–1881. Shores, M. (2010). Informal Networks and White Collar Crime: An Extended Analysis of the Madoff Scandal, https://ecommons.cornell.edu/handle/1813/15068. Smith, A.N., Watkins, M.B., Burke, M.J., Christian, M.S., Smith, C.E., Hall, A. and Simms, S. (2013). Gendered influence: A gender role perspective on the use and effectiveness of influence tactics, Journal of Management, 39 (5), 1156–1183. Thompson, G. and Schmitt, E. (2007). Graft in military contracts spread from base, The New York Times, www.nytimes.com/2007/09/24/world/middleeast/24contractor. html, September 24. Uygur, S.A. (2020). Fraud in the Charity Sector in England and Wales: Accountability and Stakeholder Oversight, Doctor of Philosophy thesis, Royal Holloway, University of London, United Kingdom. Valland, G. (2015). Svindel-tiltalt er pastor i menighet (Fraud-accused is pastor in church), daily Norwegian newspaper Bergens Tidende, February 14, p. 11. Veltrop, D.B., Bezemer, P.J., Nicholson, G. and Pugliese, A. (2021). Too unsafe to monitor? How board-CEO cognitive conflict and chair leadership shape outside director monitoring, Academy of Management Journal, 64 (1), 207–234. Väyrynen, T. and Laari-Salmela, S. (2015). Men, mammals, or machines? Dehumanization embedded in organizational practices, Journal of Business Ethics, 147, 1–19. Yip, J.A. and Schweitzer, M.E. (2015). Trust promotes unethical behavior: Excessive trust, opportunistic exploitation, and strategic exploitation, Current Opinion in Psychology, 6, 216–220.

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Chief Executive Officers

The chief executive officer (CEO) is the principal leader of the firm (Abebe and Acharya, 2021). The CEO is the only executive at level 1 in the hierarchy of an organization (Carpenter and Wade, 2002). All other executives in the organization are at lower levels. At level 2, we find the most senior executives. Level 3 includes the next tier of executives if the organization is of substantial size in terms of the number of employees. There are various other titles for the top executive in an organization, such as ‘managing director’ in the United Kingdom and ‘administrerende direktør’ in Norway. However, more and more global companies and other organizations apply the CEO title.

CEO Power and Influence CEOs typically enjoy substantial individual freedom in their professions with little or no control. The CEO is the only person at that hierarchical level in the organization. Below the CEO, there are a number of executives at the same hierarchical level. Above the CEO, there are a number of board members at the same hierarchical level. But the CEO is alone at his or her level. The CEO is supposed to be controlled by the board, but the board only meets once in a while to discuss business cases. In fact, as argued by Witt et al. (2021: 7), CEOs are in many institutional contexts powerful actors with influence on board structures: The foundation of this power is managerial discretion resulting from the historical rise of large, managerial hierarchies and the attendant separation of ownership and control in the modern firm. Defined as the range of plausible options open to management and shaped, in part, by the external institutional environment, “managerial discretion is the primary mechanism through which national institutions influence CEO effects on organizational outcomes”. While this suggests the power to influence board composition, prior research offers no clear guidance on the outcomes management is likely to pursue. CEOs with high discretion may support a conforming board composition to alleviate legitimacy or agency concerns. Conversely, powerful CEOs might promote a CEO-lone-insider board or an insider-dominated board to facilitate DOI: 10.4324/9781003302254-2

18 Chief Executive Officers more favorable board decisions and enhance CEO power over other actors such as shareholders and labor. Executives below the CEO are typically appointed by the CEO and tend to be loyal to the CEO. Therefore, power, influence, and freedom are characteristics of CEOs. Yi et al. (2020), who studied social influence among CEOs, defined social influence as conveying information to others in such a way as to influence their attitudes and gain social approval. CEO power and influence can be illustrated by what is labeled CEO fraud in law enforcement. CEO fraud is not fraud by CEOs. Rather, CEO fraud is fraud committed by someone claiming to be the CEO. If someone claims to be the CEO, most people in the organization will do what they are told. As long as they believe that the message stems from the real CEO, they are completely obedient and do as they are told by the fake CEO. The US Federal Bureau of Investigation (FBI) warned in 2016 about a dramatic increase in CEO fraud, email scams in which the attacker spoofs a message from the boss and tricks someone at the organization into wiring funds to the fraudsters. The FBI estimates these scams cost organizations in the United States more than one billion dollars per year. Organizations that are victimized by CEO fraud can be characterized by a combination of CEO power and obedience culture. As argued by Hambrick and Wowak (2021: 44), CEOs vary in how much power they possess, and their power stems from multiple sources: A CEO might possess structural power because of large shareholdings, founder status, holding the board chair position, and by co-opting outside directors. Or a CEO might possess reputational legitimacy because of a sustained record of outstanding performance. Some of the surprises for new CEOs arise from time and knowledge limitations – there is so much to do in complex new areas, with imperfect information and never enough time. Others stem from unexpected and unfamiliar new roles and altered professional relationships. Still others occur because of the frequent paradox that the more power you have, the harder it is to use it. While several of the challenges may appear familiar, Porter et al. (2004) discovered that nothing in a leader’s background, even running a large business within his or her company, fully prepares them to be CEO. CEOs have long been recognized as the principal architects of corporate strategy and major catalysts of organizational change, and the extent to which CEOs can effect change in corporate strategy is thought to be determined largely by the power they possess, and how they decide to apply it (Bigley and Wiersema, 2002). While strategy development as well as organizational change may be at the center of CEO work, many CEOs spend much more time on other – and more minor – matters and issues. Conflicts between individuals in the organization take time to resolve, and sudden media attention can steal even more time – and sometimes sleep – from important strategic thinking. Trivial matters tend to occupy much of CEO time.

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Many CEOs discover that they are alone, particularly in difficult times. They have nobody at their side on the same organizational level with whom they can openly discuss how to get out of a crisis situation (König et al., 2020). Rather, others in the organization may speculate whether or not the CEO will survive in the position and act accordingly to rescue their own future in the organization. Problem-solving is at the core of CEO work. Mindsets are conceived as distinct cognitive operations that facilitate problem-solving. The concept dates back to the end of the nineteenth century and the experimental psychologist Oswald Külpe, who showed that most human thinking happens without images (imageless thoughts), and that most of it also occurs outside of our awareness. The resulting term, ‘Bewusstseinslage’, literally a ‘state of mind’, was later translated into the concept of mindsets, ‘Einstellung’. Külpe showed that subjects would single out the features related to their tasks, while unimportant or irrelevant features were rejected from their attention. For example, faced with the task of observing the number of letters presented to them, subjects may be totally unable to recall the color and may even deny that color has been experienced at all. This is the original meaning of the term ‘mindset’: the brain is ‘set’ to perceive the world according to predefined criteria. In the course of his research, it was observed that, while given tasks were conscious initially, after a few repetitions the tasks would gradually disappear from consciousness. Upon increased practice, conscious awareness concerning the task waned, although the task could be completed even if there was no awareness of it (Cohen-Kdoshay and Meiran, 2007). Subjects had no phenomenological awareness of inner speech at the time of study – that is, there was no longer conscious reflection about the tasks. The original purpose is duly forgotten, and appearance of the stimulus automatically activated the prescribed conduct. The word ‘set’ in ‘mindset’ describes how the actor is perceptually prepared or ‘set’ to detect and respond to a given situation (Cohen-Kdoshay and Meiran, 2007), a cognitive recognition pattern that is automatically evoked when scanning the environment. The core aspect is that mindsets are (a) caused by repetitive tasks; (b) automatic behaviors set in play with little or no awareness; and (c) replace personality-based dispositions with mindset content. Mindsets can be extremely effective in terms of seizing business opportunities but are in themselves neither lawful nor unlawful since the ethical implications may not be a part of the mindset. Instead, they may be seen as automated recognition of opportunity with instrumental value as profit-maximizing in a competitive setting. Bigley and Wiersema (2002) argue that CEOs’ cognitive orientation should influence how they wield their power to affect corporate strategy. On the other hand, predictions about a CEO’s use of power require an understanding of the CEO’s cognitive orientation toward his or her firm’s strategy, because power is simply the ability to bring about a preferred or intended effect. Hypothesized association between a CEO’s cognitive orientation and corporate strategy presupposes that the CEO has sufficient power to bring about the preferred or intended effects. At the core of a CEO’s mindset, we sometimes find himself or herself. Being alone at the top with rivaling executives as main contacts, the CEO has to enter

20 Chief Executive Officers the role of team player without really believing that it will work. There is no top management team, and the CEO is alone. Over time, a CEO may focus more and more on managing the role rather than managing the company. Not all CEOs work for change. Some are more committed to the status quo – particularly to their organization’s current strategy and leadership profile – than others. Hambrick et al. (1993) found that many organizations do not adapt effectively to changes in their environments because of CEO commitment to the status quo. Organizational inertia can thus be caused by the CEO, making the organization unable to change at the same rate as its environment. McClelland et al. (2010) found that CEO commitment to the status quo is influenced by variables at the individual, firm, and industry levels. Increasing CEO age and tenure are associated with greater status quo commitment. CEOs in firms with financial slack view change more favorably. In contrast, CEOs at firms with liquidity problems may be more committed to the status quo out of necessity. CEOs’ mindsets and strategic beliefs are likely to be instantiated to a significant degree in their firms’ current strategies. When a top executive seeking advice confirms and/or restores his or her confidence in the correctness of strategic beliefs, the CEO will be less inclined to alter firm strategy. The mindsets of CEOs are expected to cause them to be the principal architects of corporate strategy and major catalysts of organizational change (Bigley and Wiersema, 2002). Belonging to their mindsets is how to use power and secrecy, building alliances with some people and keeping others in the dark about their dispositions, as shown by Bigley and Wiersema (2002). McDonald and Westphal (2003) theorized that relatively poor firm performance can prompt CEOs to seek more advice from executives of other firms who are their friends or similar to them and less advice from acquaintances or dissimilar others, and suggests how and why this pattern of advice-seeking could reduce firms’ propensity to change corporate strategy in response to poor performance. Similarly, CEOs can have a tendency to listen more to executives in their top management teams who confirm rather than disconfirm their beliefs. Differential association theory postulates that CEO learning occurs in association with those who find their behavior and thinking favorable and in isolation from those who find it unfavorable. Differential association is the process whereby one is exposed to normative definitions favorable or unfavorable to illegal or law-abiding behavior (Sutherland, 1983). Whether CEOs engage in white-collar crime is largely based on their socialization within certain peer groups (Holtfreter, 2015). McDonald and Westphal (2003) tested their hypothesis that relatively poor firm performance can prompt CEOs to seek self-confirming advice. The results from a large sample confirm their hypothesis and show that executives’ social network ties can influence firms’ responses to economic adversity, in particular by inhibiting strategic change in response to relatively poor organizational performance. Additional findings indicate that CEOs’ advice-seeking in response to low performance may ultimately have negative consequences for subsequent performance, suggesting how CEOs’ social network ties could play an indirect role in organizational decline and downward spirals in firm performance.

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Johnson (2002) phrased the question: Do CEOs matter? To answer this, he cites two critical dimensions that influence the magnitude of a CEO’s impact on an organization. First, resource availability, which is dependent upon an organization’s level of debt (higher debt means less cash available to direct toward investments or acquisitions) and level of slack (that is, the number of extra people or amount of assets that the CEO can easily redeploy to take advantage of an opportunity or to avoid a threat). The second dimension is opportunity availability, which is determined by independence, concentration, and growth. CEOs at the helms of organizations with low debt levels and high slack levels – thus high resource availability – will exert more powerful impact on their organizations, and CEO impact increases as opportunities become scarcer. In the theoretical perspective of principal and agent, the CEO is the agent in a relationship with the board as the principal. Agency theory suggests that agent and principal may be dissimilar in three aspects. First, they may have different preferences and even conflicting values. Next, there is an asymmetry in available knowledge about the organization, where the agent knows much more than the principal. Finally, differences in attitude towards risk may exist, where they have different risk aversion and risk willingness. Because of such differences, the CEO may demonstrate opportunistic behavior by making decisions that benefit himself or herself at the expense of the board as the principal. Agency theory argues that the principal is unable to control the agent because of lack of insight and access to activities performed by the agent in roles such as mayor, chairman, or CEO (Eisenhardt, 1985). Shen (2003) proposes that boards need to focus on CEO leadership development in early CEO tenure and shift toward control of managerial opportunism as CEOs prove their leadership on the job. Shareholders employ some agents in terms of board members. Board members recruit an agent as chief executive officer. The CEO employs a number of top executives. Top executives recruit middle managers. Thus, principals and agents can be found at different levels of the corporate hierarchy, and some are both in the role of principal in one relationship and in the role of agent in another relationship. Most CEO research has tended to take a rather one-sided view of leadership, emphasizing its positive and constructive aspects while avoiding its darker sides. A possible reason for this one-sided attention may be that leadership research has primarily focused on leader effectiveness, strategic thinking, and factors that contribute to optimal performance and results (Glasø et al., 2010). However, there are several dark sides of leadership that merit attention by researchers. One of the darkest sides of leadership is white-collar crime, where the CEO exploits criminal options for corporate and/or personal gain. This constitutes the main topic of our statistical analysis. However, dark sides of leadership can be found in less severe forms. One example is bullying and harassment, which may or may not be linked to crime. Bullying and harassment by CEOs is reported to happen on a regular basis in many work organizations. Bullying and harassment at work may be defined as repeated behavior, actions, and practices directed at one or more colleagues,

22 Chief Executive Officers which may be conducted either deliberately or unconsciously, but which are unwanted by the targets, causing humiliation, offense, and distress, and which may interfere with job performance and/or cause an unpleasant working environment (Hoel et al., 2010). CEO power and influence, actions, and decisions are supposed to be monitored by owners, shareholders, or the board of directors. Boards of directors are charged with protecting the interests of their companies’ shareholders. As such, their primary role is to monitor the behaviors and efficacy of company executives on behalf of dispersed owners, alert to potential honest mistakes and misjudgments, as well as outright misdeeds and white-collar crime (Veltrop et al., 2021). However, Hambrick et al. (2015) found that boards often fail in their monitoring responsibilities. One reason is that many board members are missing some of the following attributes: independence, expertise in the domain, bandwidth, and motivation. To be capable of dispassionate monitoring, a director must be independent and objective about the organization’s managers and their policies. Being an effective monitor requires expertise – that is, in-depth knowledge and understanding of the domain being monitored. Bandwidth means the ability to devote requisite time and attention. Directors are selected to the board primarily because of their accomplishments, stature, and connections. Thus, most directors are extremely busy, with significant competing demands on their time and attention. The fourth and final attribute is motivation, which is defined by Hambrick et al. (2015) as eagerness to exert oneself on behalf of shareholders. Monitoring of the CEO is hard to accomplish, especially if there is an underlying board–CEO cognitive conflict (Veltrop et al., 2021). It requires a director to undertake careful scrutiny and analysis of available information. It also requires a director to ask for additional information, which then requires yet more time and effort and might raise eyebrows. To voice any substantive concerns, an act that fellow directors might see as non-collegial, time-consuming, and even as a provocation, is no easy task at all. The CEO may perceive it as criticism (Tingstad, 2016: 28): The real challenge lies in each director’s courage and willingness to challenge management, ask tough questions and take intractable positions on the board. Such courage could of course mean that you end up in minority position, but also that you are frowned upon in the board and among executives, are perceived as problematic, and eventually disappear from the board. Experience, among others from Yara, shows that only a few board members have the courage to move into such a position. CEOs tend to have a great extent of self-efficacy, which refers to their belief in their own capacity to execute behaviors necessary to produce specific performance attainments and desired results. Engdahl (2021) found that perceived self-efficacy is often held to be the most focal mechanism of human agency. He argued that self-efficacy has a strong potential to explain actions of white-collar offenders. Particularly in the form of dramaturgical self-efficacy, white-collar offenders can

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have the ability to control others’ impressions of financially relevant information and thus conceal wrongdoing.

Trust in the Chief Executive The issue of fairness of perceived trust was described in the previous chapter and is applied to the chief executive here. To repeat, the chief executive officer is the top executive in an organization. In fact, the CEO is the only function and position at level 1 in an organization. The CEO appoints other executives who all report to the chief executive. The CEO reports to a board of directors. Directors typically have a main job position somewhere else – for example, as chief executives of other enterprises, as law firm partners, or as elected politicians. The director position is an additional assignment that can suffer from work overload in the main position. The board meets several times a year, but directors have little or no involvement in the daily operation of the organization. They simply have to trust the CEO. Board directors express trust both by intention and by behavior. By intention, the board is concerned with degrees of freedom left to the discretion of the CEO, where the CEO is in need of many degrees of freedom to handle business situations that need immediate responses. By behavior, board members are far more absent than present in their minds regarding the enterprise that is managed by the CEO. The question thus arises whether the level of trust is fair when considering research by Baer et al. (2021). It might easily be argued that the individual in the CEO position is left alone, sometimes in a vacuum. Maybe the CEO would want less trust and find less trust to be fairer. However, directors on the board simply do not have the time or energy to involve themselves as a consequence of less trust. As suggested by Baer et al. (2021), a result of lacking congruence between trust wanted and trust received is that the CEO might have lower positive perceptions of the board’s fairness. Trust received can be detrimental when it does not match trust wanted. The consequence can be lower in-role and extra-role performance by the CEO. It might impact the loyalty of the CEO towards ambitions and goals set by the board of directors. When a CEO considers excess trusting behaviors to be unfair, compared to situations of fit, it can impact CEO task performance and citizenship behavior. Incongruence between trust wanted and trust received can influence the principal–agent relationship between the board and the CEO. Too much and too little trust received compared to trust wanted can influence CEO willingness for opportunistic behavior in the relationship. While the board is the principal, the CEO is the agent. The CEO conducts and completes activities on behalf of the board. However, since the trust-based relationship is lacking congruence as well as oversight by the board, three agency problems will typically be present (Bosse and Phillips, 2016; Naheem, 2020; Pillay and Kluvers, 2014). The first problem is knowledge asymmetry, where the directors know little or nothing about what is going on. The second problem is goal focus, where the CEO may pursue goals

24 Chief Executive Officers other than those set by the board. The third problem is risk deviance, where the risk willingness of the CEO can differ from the risk willingness of the board. The issue of felt trust versus actual trust was described in the previous chapter and is applied to the chief executive here. To repeat, Campagna et al. (2020) emphasized the problematic discrepancy between feeling trusted and being trusted by others in the organization who are below the chief executive officer in the hierarchy. An even more problematic discrepancy might be between expected trust and actual trust. The latter discrepancy typically occurs when the CEO suffers from narcissistic traits. Some high-status individuals have a need for acclaim as narcissists (Chatterjee and Pollock, 2017; Zhu and Chen, 2015). If illegal financial gain can help achieve the desired acclaim, narcissists might feel entitled to commit crime (Nichol, 2019). Narcissists exhibit an unusual trust in themselves, believing that they are uniquely special and entitled to more benefits than are legitimately available to them (Galvin et al., 2015; Ouimet, 2010; Zvi and Elaad, 2018). A pervasive pattern of grandiosity, a need for admiration, and an empathy deficit typify narcissism. Peixoto et al. (2021) referred to studies showing that narcissistic CEOs are frequently associated with extreme company performance, either extreme success or extreme failure. The issue of trust in religious institutions was described in the previous chapter and is exemplified here. The priest Are Blomhoff in the Methodist church was appointed chief executive officer in the religious Betanien Foundation in Bergen in Norway (Johansen, 2015; Johnsen, 2013). He lived a modest lifestyle while successfully expanding foundation business. He did very well in negotiations with the Municipality of Bergen Hordaland County and the government, and he had a genuine interest in achieving the best possible deals for Betanien. On several occasions, people honored and admired him for having brought Betanien to successful expansion and profitability. Soon Betanien ran several hospitals, nursing homes, and kindergartens. The district court of Drammen is located west of the capital Oslo in Norway. On February 2, 2015, the former CEO was sentenced to prison for three years because of embezzlement in the Methodist foundation Betanien (Drammen tingrett, 2015). He admitted to embezzlement of 16 million Norwegian kroner (about US $2 million) that he later agreed to pay back based on future income and heritage. Fundación Betanien was opened in the autumn of 2001 in Alfaz del Pi in Spain. The institution in Spain is part of Betanien’s rehabilitation and nursing home. Betanien Foundation in Bergen owned and operated the home. The CEO initiated and successfully established Fundación Betanien. He told accountants in Bergen whenever they had to transfer money from Norway to Spain. The CEO experienced complete trust from all involved. He had authority both as a business leader and as a religious leader. When he made a mistake, nobody noticed. He was managing large sums of money all by himself. The auditor in Norway believed that Spanish auditors would audit accounts in Spain, while accountants in Spain believed the audit took place in Norway. In Spain, the CEO developed a drinking problem. While always sober in Norway, he became a heavy drinker in Spain. He enjoyed drinking, and he could

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afford it at the expense of the foundation. Soon he expanded his local lifestyle in Spain to include parties with prostitutes that he paid with money from the foundation. His embezzlement of funds from the foundation enabled him to live a double life, where he was modest at home, while living like a playboy in Spain. He abused the money that he controlled on behalf of the foundation to enjoy a lifestyle in Spain that he never could at home as a priest and as a family man. After much pressure and threats from two whistleblowers, the chairman at the foundation hired BDO (2014) to conduct an internal investigation, where fraud examiners detected large sums of money embezzled by the CEO over a period of several years. According to Nakling (2015), the Blomhoff episode caused no learning or change at the Betanien Foundation.

Accountability of the CEO Being a CEO means bearing full responsibility for an organization’s success or failure but being unable to control most of what will determine it; having more authority than anyone else in the organization but being unable to wield it without unhappy consequences. Porter et al. (2004) make this sound like a very tough job. They argue that this comes as a surprise to CEOs who are new to the position. It is often argued in business school textbooks that a CEO’s main responsibilities include developing and implementing high-level strategies, making major corporate decisions, and managing overall operations and resources of a company. In terms of time, many CEOs spend most of their time on conflicts that may involve themselves, media, and personal agendas such as headquarter location close to home, company cars, and the CEO’s reputation outside and inside the organization. An interesting issue is whether or not a CEO bears full responsibility for financial crime on behalf of the organization and whether a CEO can be held accountable for corporate crime. Corporate crime, sometimes labeled organizational offending, results from offenses by collectivities or aggregates of discrete individuals (Bradshaw, 2015; Shichor and Heeren, 2021). If a corporate official violates the law in acting for the corporation, it is defined as corporate crime. On the other hand, if he or she gains personal benefit in the commission of a financial crime, it is defined as occupational crime. Occupational crime is for personal benefit, while corporate crime is for organizational benefit. A corporation cannot be subject to imprisonment, and therefore the majority of law violations by corporations are legally solved by a fine. For example, Dutch telecommunications company VimpelCom paid $835 million to the US Securities and Exchange Commission and to the public prosecution service of the Netherlands for corruption in Uzbekistan to obtain mobile frequencies in that country. It came as a surprise that Norwegian citizen Jo Lunder, former CEO at VimpelCom, was charged with the company’s corruption by the Norwegian national authority for investigation and prosecution of economic crime (Økokrim), although Lunder claimed he had never been involved (Hovland and Gauthier-Villars, 2015). Other

26 Chief Executive Officers Norwegian CEOs at that time, such as Walter Qvam, CEO at defense company Kongsberg Group involved in corruption in Romania, and Gunn Wærsted, CEO at Nordea bank involved in illegal offshore structures for tax evasion and money laundering, were never charged with their organizations’ misconduct and crime (Ekeberg, 2016). Accountability refers to liability, answerability, and blameworthiness. Accountability is the acknowledgment and assumption of responsibility for actions and decisions. Accountability refers to situations in which someone is required or expected to justify actions and decisions. Accountability is concerned with holding someone responsible to someone for something (Smith, 2009). Accountability implies individual responsibility for misconduct and crime. In accountability processes, sanctions generally function to punish failure, while rewards and awards generally function to commend successful performance. In rare cases, the CEO is held personally accountable for corporate crime and convicted and imprisoned. Thorleif Enger, former CEO at global fertilizer manufacturer Yara, was sentenced to three years in prison in Norway. Enger and three more executives were convicted and imprisoned in 2015. They have appealed their verdicts, and they appeared again in a court of appeals in late 2016 (Barstad, 2016). Prosecutors accused the men of knowing about payments of around $8 million in bribes to officials in India and Libya – including to the family of former Libyan leader Muammar Gadhafi’s oil minister and the family of a financial adviser in India’s Ministry of Chemicals and Fertilizers – for the right to establish joint ventures (Berglund, 2015). After the conviction of the CEO at Yara, Tormod Tingstad, former chief compliance officer at Yara, wrote a note under the heading “One day of happiness?” (Tingstad, 2015): Should I be happy or sad on a day when four men, current and former Yara executives, are convicted of gross corruption in the Oslo City Court? As it stands today, two to three years imprisonment awaits the four, having been found guilty of corruption in connection with investments in Libya and India. I was Chief Compliance Officer of Yara between 2009 and 2013, and lived and worked in the “corruption tsunami” that marred the company in the same period. My job was to protect the integrity of the company, while rendering Norwegian authorities the assistance they required during the investigation. A balancing act, to say the least, I never had an agenda to “get” anyone, but I was the compliance officer for a reason. On a personal level, today´s convictions, sure to be appealed, call for no celebrations. Two of the men, Enger and Wallace, have been my superiors – and friends. I have travelled with Enger and his wife, and stayed in Wallace’s house when in Florida. They have both been excellent colleagues, and helped advanced my career. Within Yara, Enger was, and still is, widely considered the “man who created Yara”, while what was to follow him never made the same impact. As a former colleague, I wish Enger had a more graceful exit from office.

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I also feel sad for Yara today: A company that was the historical, if not always financial, backbone of the proud industry locomotive, Norsk Hydro. Yara was the company that raised from the verge of virtual bankruptcy in the late 90’s, to become an industry leader, “The Industry Shaper”, just a few years later. Today that success fades somewhat in the shadow of the alleged business methods of its now convicted executive. I do however feel very encouraged by the determination and ability of the Norwegian authorities, namely ØKOKRIM, as well as the Norwegian courts, to invest substantially in pursuing international corruption well beyond the borders of Norway. We can all have opinions on their approach and ability to strike the right targets, but the contribution to the collective fight against corruption is unquestionable. Hopefully, more countries will follow suit. Ken Wallace was one of the other convicted executives at Yara. He said in court in September 2016: “I am a good soldier but not the commander.” Then the obvious question follows: Who is the commander? The likely answer must be: The CEO. Thorleif Enger’s successor as CEO at Yara, Jørgen Ole Haslestad, remembered very little when he was a witness in a court of appeal against Enger and three other executives. This was on October 26, 2016, when Haslestad was asked a number of questions concerning his knowledge of corruption in Libya and India. Some CEOs show irresponsible behavior. Rather than exposing socially responsible activities, some CEOs contribute to socially irresponsible activities. Tang et al. (2015) studied corporate social irresponsibility and found that CEO hubris negatively affects corporate social responsibility. They claim that hubris is a prominent character trait of many corporate executives. CEOs suffering from hubris are optimistically overconfident; they overestimate their own capabilities and consider themselves superior to the average person. They have a strong sense of self-sufficiency and expect positive outcomes to emerge even in uncertain environments. Hubris lacks key elements of the narcissistic personality, most notably the continuous need for affirmation and applause. Unlike narcissistic CEOs, hubristic CEOs care less about external recognition gained from being socially responsible.

CEO Role and Behavior While research on the effect of CEO behavior on the company’s performance remains inconclusive, the investment in top leadership performance and accountability has reached unprecedented heights. In 2005, the average US CEO’s pay for one day was almost equivalent to the average worker’s pay for one year. Citing this figure, researchers call for more studies of the job demands of CEOs. When evaluating the effect of CEOs on company performance in terms of leadership skills, it is argued that a one-dimensional more-or-less perspective is too simple. Just as some CEOs may be related to spectacular growth, as in the case of Steve Jobs, other CEOs may expose the company to spectacular downsides and risks by committing white-collar crime.

28 Chief Executive Officers Porter et al. (2004) argue that this comes as a surprise to CEOs who are new to the job. Is it possible that CEOs are more likely than other managers and professionals to develop mindsets that are conducive to white-collar crime? Our study below addresses the following research question: What differences might be found between white-collar criminals in the position of chief executive officers versus white-collar criminals in other positions? Being a CEO involves handling exceptional circumstances and developing a high level of tacit knowledge and expertise. These characteristics and experiences contribute to the accumulation of firm-specific human capital. The time a CEO spends in the position represents a significant investment in firm-specific human capital for both the individual and the firm. The firm invests its resources to compensate the CEO, while the CEO invests his or her productive time. Both parties make these investments with an expectation of future return. Therefore, time is a major factor determining the level of firm-specific human capital investment (Buchholtz et al., 2003). Being the CEO means being formally accountable and bearing full responsibility for a company’s success or failure, but at the same time being unable to control most of that which will determine it. Being the CEO means having more authority than anyone else in the organization but being unable to wield it without unhappy consequences. Porter et al. (2004) make this sound like a very tough job and argue that the extent of the challenges comes as a surprise to CEOs who are new to the job. Some of the surprises for new CEOs arise from limitations in time and knowledge: there is so much to do in new and complex areas, with imperfect information and never enough time. Others stem from unexpected and unfamiliar new roles and altered professional relationships. Still others arise according to the paradox that the more power you have, the harder it is to use it. While several of the challenges may appear familiar, Porter et al. (2004) discovered that nothing in a leader’s background, even running a large business within his or her company, can fully prepare them to be a CEO. CEOs have long been assumed to take the positions of architects and catalysts of organizational change. The extent to which CEOs can effect change in corporate strategy is thought to be determined largely by the power they possess and how they decide to wield it (Bigley and Wiersema, 2002). Because of the overwhelming workload, combined with a need to prioritize their own time, convenience is often at the core of CEO thinking. When assuming the position of a CEO, the new accountabilities arise from several sources, such as time and knowledge limitations, unexpected and unfamiliar new roles, and altered professional relationships. Last but not least, the lack of group identity may make it hard to stay in tune with the values of the larger society. A CEO is normally not an owner and not quite an employee either, but a wielder of powers – necessitating that a certain distance is kept from almost all stakeholders. The only certainty is the purpose of the task in hand: to maximize returns on investments and keeping the employed capital as lean as possible. However, as Ranft et al. (2007: 677) have observed:

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Holding people accountable for outcomes is quite different from holding them accountable for the behaviors demonstrated to achieve those outcomes. The focus on accountability is, paradoxically, a means of giving the CEO more discretion to act, since the board entrusts the CEO to find a way. In this setting, declarative knowledge has been shown to be of critical but limited value. The industry of leadership theories and leadership development gain their legitimization from the need to develop dynamic mindsets, rather than formal, declarative knowledge. A look at the nature of mindsets shows how and why these mindsets may facilitate criminal transgressions in CEOs. The relationship between the CEO and the board of directors is of central importance in corporate governance. Taking an economic model of man that treats human beings as rational actors seeking to maximize individual utility, agency theory argues that, given the opportunity, CEOs will maximize their own utilities at the expense of shareholders (Shen, 2003). CEO role and behavior are linked to organizational identification at the CEO level. While some degree of organizational identification makes the CEO more successful for the organization (Lange et al., 2015), too much organizational identification can be damaging to the organization (Galvin et al., 2015). There is a growing recognition in the strategy literature of the value in understanding various aspects of CEOs’ psychological states given their potential consequences for the firm. Evidence suggests that the chief executive officer’s organizational identification, meaning the degree to which the CEO’s own identity and his or her perceptions of the organization’s identity are tied together or overlap, is a key psychological state of mind to understand, because it may have important performance effects. Lange et al. (2015) argue that strong CEO organizational identification reduces the agency problem of opportunistic behavior because there is little or no difference between the CEO’s own self-interests and the interests of the organization. Increased organizational identification can be predictive of reduced self-serving outcomes with respect to both compensation and prerequisites. CEOs with higher levels of organizational identification are especially willing to engage in behaviors that help the organization and its members. Organizational leaders with higher levels of organizational identification are apt to be good stewards of their organizations’ interests. Even as CEO organizational identification may have those positive implications for the organization, Lange et al. (2015: 1226) emphasize the possible dark side of the phenomenon: Very high levels of CEO organizational identification can have non-beneficial consequences for the firm and its stakeholders when the CEO begins to view certain pro-organizational behaviors as correct and appropriate even if in a broader moral sense, they are not. Similarly, Galvin et al. (2015) emphasize the extreme dark side of organizational identification by discussing narcissistic organizational identification. If a CEO says

30 Chief Executive Officers and believes the statement – “I am the company” – then the organization is in for trouble. Narcissism here means seeing oneself as central to the organization’s identity. It is a self-centered form of organizational identification. The CEO may lose his or her independent sense of self and engage in questionable behaviors on behalf of the organization. Narcissistic organizational identification is characterized by the domination of individual identity over organizational identity. CEOs with narcissistic organizational identification feel a strong affinity for their organizations’ identities, but as an expression of themselves. They see their own identity as the main reference for understanding what the organization is all about. Some few CEOs take on an activist role and behavior. Activist CEOs comment on social and political affairs (Hambrick and Wowak, 2021: 37): These public expressions are sometimes couched as representing the beliefs of the CEOs and their organizations […] Such activism by CEOs is distinct from related phenomena. First it differs from other forms of corporate political involvement, particularly lobbying and donation-giving, because of its intentionally public nature and its explicit attachment to the CEO. Lobbying and gift-giving are typically conducted away from the public eye, aimed at quietly currying favor with politicians with the expectation of future benefits, while CEO activism is intentionally visible and expressly intended to attract attention to the CEO’s stance. Moreover, many instances of CEO activism are not geared toward obtaining benefits for the CEOs’ firms per se, but instead are aimed at obtaining more pro-societal outcomes. Hambrick and Wowak (2021) mention as an example when 30 CEOs took out a full-page advertisement in the Wall Street Journal urging President Trump not to withdraw from the Paris climate accord. In our perspective of trusted chief executives in white-collar crime, sociopolitical activism can divert public as well as internal attention to CEO wrongdoing. An example from Sweden might be CEO Boris Benulic who frequently voiced his opinions in the public. He received a sentence of three and a half years in prison for accounting fraud (Benulic, 2018; Mo, 2018; Södertörn, 2015; Svea, 2017).

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32 Chief Executive Officers Holtfreter, K. (2015). General theory, gender-specific theory, and white-collar crime, Journal of Financial Crime, 22 (4), 422–431. Hovland, K.M. and Gauthier-Villars, D. (2015). VimpelCom bribery investigations spark Telenor review, The Wall Street Journal, www.wsj.com, November 5. Johansen, L. (2015). Hele styret trekker seg etter pastor-skandalen (The whole board resigns after pastor scandal), daily Norwegian newspaper VG, www.vg.no, April 14. Johnsen, L. (2013). Drammensprest siktet for underslag av nesten 15 millioner (Drammen priest charged for embezzlement of nearly 15 million), daily Norwegian newspaper Drammens Tidende, www.dt.no, November 21. Johnson, L.K. (2002). Do CEOs matter? MIT Sloan Management Review, Winter, 8–9. König, A., Graf-Vlachy, L., Bundy, J. and Little, L.M. (2020). A blessing and a curse: How CEOs’ trait empathy affects their management of organizational crisis, Academy of Management Review, 45 (1), 130–153. Lange, D., Boivie, S. and Westphal, J.D. (2015). Predicting organizational identification at the CEO level, Strategic Management Journal, 36, 1224–1244. McClelland, P.L., Liang, X. and Barker, V.L. (2010). CEO commitment to the status quo: Replication and extension using content analysis, Journal of Management, 36 (5), 1251– 1277. McDonald, M.L. and Westphal, J.D. (2003). Getting by with the advice of their friends: CEOs’ advice networks and firms’ strategic responses to poor performance, Administrative Science Quarterly, 48, 1–32. Mo, M.L. (2018). Nå må Boris Benulic sone i fengsel (Now Boris Benulic must be jailed), online newspaper iTromsø, www.itromso.no, published May 8. Naheem, M.A. (2020). The agency dilemma in anti-money laundering regulation, Journal of Money Laundering Control, published online, doi:doi:10.1108/JMLC-01-20160007. Nakling, A. (2015). Lærdomen frå Betanien (Lessons learned from Betanien), daily Norwegian newspaper Bergens Tidende, www.bt.no, published March 20. Nichol, J.E. (2019). The effects of contract framing on misconduct and entitlement, The Accounting Review, 94 (3), 329–344. Ouimet, G. (2010). Dynamics of narcissistic leadership in organizations, Journal of Managerial Psychology, 25 (7), 713–726. Peixoto, A., Gouveia, T., Sousa, P., Faria, R. and Almeida, P.R. (2021). Dark personality traits and tolerance towards unethical behaviors on entrepreneurship: A comparison between entrepreneurs and non-entrepreneurs, Journal of White Collar and Corporate Crime, published online, doi:doi:10.1177/2631309X211029877, 9 pages. Pillay, S. and Kluvers, R. (2014). An institutional theory perspective on corruption: The case of a developing democracy, Financial Accountability & Management, 30 (1), 95– 119. Porter, M.E., Lorsch, J.W. and Nohria, N. (2004). Seven surprises for new CEOs, Harvard Business Review, October, 62–72. Ranft, A.L., Ferris, G.R. and Perryman, A.A. (2007). Dealing with celebrity and accountability in the top job, Human Resource Management, 46 (4), 671–682. Shen, W. (2003). The dynamics of the CEO-board relationship: An evolutionary perspective, Academy of Management Review, 28 (3), 466–476. Shichor, D. and Heeren, J.W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga, Journal of White Collar and Corporate Crime, 2 (2), 97–108. Smith, G. (2009). Citizen oversight of independent police services: Bifurcated accountability, regulation creep, and lessons learning, Regulation & Governance, 3, 421–441.

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Sutherland, E.H. (1983). White Collar Crime: The Uncut Version, New Haven, CT: Yale University Press. Svea (2017). Case B 5582-12, Svea hovrätt (Svea court of appeals), Sweden, November 29. Södertörn (2015). Case B 5582-12, Södertörns tingsrätt (Södertörn district court), Sweden, July 8. Tang, Y., Qian, C., Chen, G. and Shen, R. (2015). How CEO hubris affects corporate social (ir)responsibility, Strategic Management Journal, 36, 1338–1357. Tingstad, T. (2015). A day of happiness? LinkedIn, www.linkedin.com/pulse/day-happinesstormod-tingstad?articleId=6024277198138077184#comments-6024277198138077184& trk=prof-post, published July 7. Tingstad, T. (2016). Styrene mangler mot, ikke kunnskap (Boards lack courage, not knowledge), daily Norwegian business newspaper Dagens Næringsliv, September 17, p. 28. Veltrop, D.B., Bezemer, P.J., Nicholson, G. and Pugliese, A. (2021). Too unsafe to monitor? How board-CEO cognitive conflict and chair leadership shape outside director monitoring, Academy of Management Journal, 64 (1), 207–234. Witt, M.A., Fainshmidt, S. and Aguilera, R.V. (2021). Our board, our rules: Nonconformity to global corporate governance norms, Administrative Science Quarterly, published online, doi:doi:10.1177/00018392211022726. Yi, X., Zhang, Y.A. and Windsor, D. (2020). You are great and I am great (too): Examining new CEOs’ social influence behaviors during leadership transition, Academy of Management Journal, 63 (5), 1508–1534. Zhu, D.H. and Chen, G. (2015). CEO narcissism and the impact of prior board experience on corporate strategy, Administrative Science Quarterly, 60 (1), 31–65. Zvi, L. and Elaad, E. (2018). Correlates of narcissism, self-reported lies, and self-assessed abilities to tell and detect lies, tell truths, and believe others, Journal of Investigative Psychology and Offender Profiling, 15, 271–286.

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White-Collar Offenders

A white-collar offender is a person in the upper echelon of society, such as a corporate chief executive officer (CEO), who abuses their professional position to commit and conceal financial wrongdoing (Piquero, 2012, 2018; Schoultz and Flyghed, 2020a, 2020b, 2021a, 2021b; Stadler et al., 2013; Sutherland, 1983). Rich and powerful people can behave like robber barons because they make the laws and because they control law enforcement (Chamlin, 2009; Kane, 2003; Haines, 2014; Sutherland, 1983; Veblen, 1899; Wheelock et al., 2011). The ruling class does not consider white-collar offenses as regular crime, and certainly not similar to street crime (Hagan, 1980; Lanier and Henry, 2009a, 2009b; Slyke and Bales, 2013). When Sutherland (1939) first coined the term white-collar crime, there were indeed reactions in the audience of upper-class people. They asked why one should define actions by privileged individuals of the influential classes as crime at the level of street crime by ordinary criminals. This question is still valid today as prosecution of financial crime by elite class criminals is still questioned by the public (Berghoff and Spiekermann, 2018).

Classic United States Offenders President George W. Bush’s connections to Enron and CEO Kenneth Lay were well documented in major American newspapers. However, when Enron emerged as a deviant organization with a bad apple CEO, Lay and other top executives were prosecuted. Lay died of a heart attack before his conviction (Bendiktsson, 2010). White-collar criminals are mostly men. The low female fraction can be explained by a number of factors, such as the relative need for material wealth, relative opportunity to commit crime, and relative risk aversion. In addition, the detection rate for female white-collar criminals may be lower than for male criminals – for example, because women are more seldom suspected of crime. Most famous United States cases are men such as Ebbers, Madoff, Raparatman, and Schilling. In Germany, Blickle et al. (2006) studied a sample of 76 convicted white-collar criminals where six offenders were women while 70 offenders were men. The US sample studied by Langton and Piquero (2007) consisted of 16 percent women 84 percent men. A study in the Netherlands of 644 prosecuted white-collar DOI: 10.4324/9781003302254-3

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criminals between 2008 and 2012 shows 15 percent women and 85 percent men in the sample (Onna et al., 2014). While it is true that Bernard Madoff was the architect of a mammoth Ponzi scheme, Madoff’s fraud seems different in some significant ways from the kinds of CEO criminality at the manufacturing or telecommunications firms where large numbers of employees are put at risk, large numbers of shareholders are put at risk, financial markets in certain industries are misled in serious ways, and large numbers of salespeople and consumers impacted. Furthermore, the corruptions perpetrated by Kenneth Lay and Bernie Ebbers are different – at least in form and, in some respects, with regard to impact – from that of Bernard Madoff. When Sutherland (1939) coined the term white-collar crime, only a small percentage of the working population had white-collar positions. Sutherland made an important point that upper-class people commit crime in the course of their professions, and sometimes manipulate and cheat for vast amounts. Since Sutherland coined the term, white-collar workers are now a majority of the labor force. That is why the term has an added attribute of privileged elite, where the offender belongs to the professional elite to be classified as a white-collar offender. The elite members enjoy privileges and special access to resources to commit financial crime (Yasir et al., 2021). Given this definition, a number of situations fall outside the white-collar crime category. Examples include auto mechanics who charge for services not rendered, industrial workers who steal at the plant, or restaurant workers who scam the customers or owners. Furthermore, neither computer-enabled financial crime such as CEO fraud, where an external attacker claims to be the chief executive, nor social security fraud belongs in the category of white-collar crime (LensveltMulders et al., 2006). The growing variety of cybercrime is also excluded to the extent that offenders did not exploit privileged and trusted professional positions to commit crime (Horgan et al., 2021). For example, advance fee and non-delivery fraud in pet scams (Whittaker and Button, 2020) is not considered whitecollar crime. This book applies the offender-based perspective rather than the offense-based perspective on white-collar crime. The offender-based perspective emphasizes characteristics of actors such as social and occupational status, respectability, and power (Benson, 2020; Dodge, 2009; Friedrichs et al., 2018; Piquero and Schoepfer, 2010; Pontell et al., 2014; Stadler et al., 2013; Sutherland, 1983). Schnatterly et al. (2018) found that offenders might explain their acts of wrongdoing as morally justifiable. They found that deviant chief executive officers in particular can refer to pressures and other circumstances that justify their whitecollar crime.

Fraud Investigation Reports As evidenced by many internal investigation reports by fraud examiners after white-collar crime scandals, internal auditors, external auditors, compliance committees, and other internal and external control units do not function properly (e.

36 White-Collar Offenders g., Bruun Hjejle, 2018; Clifford Chance, 2020; Deloitte, 2015, 2017; Mannheimer Swartling, 2016; Shearman Sterling, 2017). Oversight and control functions tend to be formal units without any insights into the substance of business activities. They tend to review procedures rather than transactions within procedures. Therefore, ineffective control functions are often an important part of the opportunity structure for white-collar crime. For example, at Toshiba Corporation, lack of controls was an important element of the opportunity structure (Deloitte, 2015). Fraud examiners emphasized lack of internal controls by accounting and auditing functions, as well as lack of finance control in each corporate division. At Wells Fargo, corporate control functions were constrained by the decentralized organizational structure (Shearman Sterling, 2017; Shichor and Heeren, 2021). Fraud examiners excused corporate control functions since they suffered from harm caused by the decentralized organizational structure and a culture of substantial independence for business units. At Fuji Xerox, CEO Whittaker had gained control over reporting lines to manipulate accounting (Deloitte, 2017). At Danske Bank where money laundering occurred in their Estonian branch, corporate control functions did not work because the branch operated computer systems different from computer systems at the headquarters (Bruun Hjejle, 2018). Telenor executives ignored corruption rumors at VimpelCom since the chief compliance officer and chief legal officer did not know how to handle whistleblowing (Deloitte, 2016). Chancellor Angela Merkel in Germany had to explain herself about helping Wirecard which was accused of a billion-dollar fraud. The creditors of Wirecard were left with a loss of three billion Euros. Merkel had to explain how she could vouch for the bankrupt company (Kagge, 2021). The payment company Wirecard, which was hailed as one of Germany’s rare technology successes, collapsed into insolvency in the summer of 2020 after revealing that two billion Euros in cash did not exist (Storbeck and Morris, 2021). A few months before the collapse, fraud examiners from KPMG (2020a, 2020b) conducted an internal investigation at Wirecard where Markus Braun was the chief executive officer. A German finance deputy claimed in April 2021 that Wirecard was given no privileged treatment (Chazan, 2021): Jörg Kukies, Germany’s deputy finance minister denied seeking to protect the disgraced payment company Wirecard as a national champion, insisting that it had never received “privileged treatment” at the hands of his ministry. Kukies’ denial was part of a long opening statement at the parliamentary inquiry into one of the biggest frauds in Germany’s postwar history. “I personally never acted or intervened in favour of Wirecard,” he said. He said that Germany had “learnt the lesson” from the Wirecard scandal, initiating sweeping reform of BaFin, the German financial regulator, that would give it “more bite” and poaching the respected head of Swiss regulator Finma, Mark Branson, as its new boss. Members of parliament are investigating why the German authorities failed to prevent the Wirecard debacle and ignored a plethora of warning signs of suspicious activity at the payment provider. Their hearings reach a

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climax this week with the questioning of Olaf Scholz, the finance minister, and Angela Merkel, Germany’s veteran chancellor. Wirecard auditor Ernst & Young was in trouble for failing to uncover the fraud (Bugge, 2020). The German parliament expanded its probe into the firm’s audit of Wirecard (Storbeck, 2021b): German MPs have asked a special investigator to expand a probe into EY’s audits of Wirecard after his initial report uncovered serious shortcomings. The Big Four firm has been under intense scrutiny since last year’s collapse of Wirecard, which was awarded unqualified audits by EY for a decade. Concern has grown in recent days after a report commissioned by a German parliamentary inquiry examining the scandal reached a damning verdict over the quality of EY’s work. The report, which was seen by the Financial Times, describes how EY failed to spot fraud risk indicators, did not fully implement professional guidelines and, on key questions, relied on verbal assurances from executives. Markus Braun, Wirecard’s former chief executive officer, gave himself up to German police and testified in the fall of 2020 in front of the Bundestag commission investigating the Wirecard collapse. Jan Marsalek, former chief operating officer, disappeared to Belarus and was on Interpol’s most-wanted list (Storbeck, 2021a). As the Wirecard scandal evolved, more elite members of German society got involved. One of them was Alexander Schütz, a Deutsche Bank board member who was accused of insider trading in Wirecard shares (Storbeck and Morris, 2021): Germany’s financial watchdog has filed a criminal complaint against Deutsche Bank supervisory board member Alexander Schütz over alleged insider trading of Wirecard shares. Munich prosecutors told the Financial Times that they received the criminal complaint from BaFin by fax on Monday, adding that they were waiting for details, which the watchdog has sent by post. They will evaluate the matter once all documents have been received. Schütz, a close confidant of former Wirecard chief executive Markus Braun, has already announced that he will step down from Deutsche’s board next month. When Markus Braun testified in front of the parliamentary commission, he did not tell much. He refused to answer whether he had a daughter and what the topic was of his doctoral dissertation. Braun claimed that he was innocent, and that Wirecard had suffered from major fraud by others (Kagge, 2021).

Narcissistic Norwegian CEO Narcissistic organizational identification by some CEOs is one of several perspectives on potential criminal behavior (Galvin et al., 2015). If a CEO says and

38 White-Collar Offenders believes in the statement “I am the company”, then the organization can be in for trouble. Narcissism here means seeing oneself as central to the organization’s identity. It is a self-centered form of organizational identification. The CEO may lose his or her independent sense of self and engage in questionable behaviors. Narcissistic organizational identification implies domination of individual identity over organizational identity. CEOs with narcissistic organizational identification feel a strong affinity for their organization’s identity, but as an expression of themselves. They see their own identity as the main reference for understanding what the organization is doing and how it is structured. Removing the separation between the individual and the organization can cause the CEO to think of company money as personal money. While there is considerable variance in narcissistic tendencies across CEOs, many CEOs have narcissistic personality traits such as self-focus, self-admiration, a sense of entitlement, and a sense of superiority (Zhu and Chen, 2015). Galvin et al. (2015: 163) found that: It is not uncommon to learn of individuals in positions of power and responsibility, especially CEOs, who exploit and undermine their organizations for personal gain. A circumstance not well explained in the literature, however, is that some of those individuals may highly identify with their organizations, meaning that they see little difference between their identity and the organization’s identity – between their interests and the organization’s interests. This presents a paradox, because organizational identification typically is not noted for its adverse consequences on the organization. The CEO in Norway received a sentence of seven years in prison. He had spent company money on a variety of projects that had nothing to do with the business. As suggested by Zhu and Chen (2015), the convicted CEO favored bold actions that could cause external recognition. For example, he built a water fountain in front of a nursing home since one of the company’s business areas was water supply. The CEO used company money to buy a hunting farm in South Africa. He argued in court that this was an investment according to his new business model for the company. Similarly, he claimed in court that a number of other money flows were business investments resulting from his expanded business model. He told the court that they did not understand his business ideas. The convicted CEO was very much in line with a description presented by Zhu and Chen (2015: 35): Narcissistic CEOs tend to favor bold actions, such as large acquisitions, that attract attention. They are less responsive than other CEOs to objective indicators of their performance and more responsive to social praise. For instance, while narcissistic CEOs tend to aggressively adopt technological discontinuities, they are especially likely to do so when such behavior is expected to garner attention and admiration from external audiences.

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The convicted CEO had received an honor from the King of Norway for his good deeds in his local community, including the water fountain in front of a nursing home. Fraud examiners from Distriktsrevisjonen (2007) found that several causal factors had worked together to enable the CEO to carry out his systematic pouring and emptying of resources from the company. Among the factors were his personal commitment, willingness, and motivation to work in untraditional ways.

Offender-Based Perspectives The offender-based definition has its origin in the work of Sutherland (1939), who defined white-collar crime based on the social and occupational status of the offender as a crime committed by a person of respectability and high social status in the course of the offender’s occupation. The offender-based definition emphasizes some combination of the actor’s high social status, power, or respectability as the key features of white-collar crime (Benson et al. 2021), as well as the violation of public trust (Sohoni and Rorie, 2021). This book applies the offender-based rather than the offense-based definition of corporate crime by white-collar offenders, which is consistent with Sutherland’s (1939: 2) approach when he introduced the term: White-collar criminality in business is expressed most frequently in the form of misrepresentation in financial statements of corporations, manipulation in the stock exchange, commercial bribery, bribery of public officials directly or indirectly in order to secure favorable contracts and legislation, misrepresentation in advertising and salesmanship, embezzlement and misapplication of funds, short weights and measures and misgrading of commodities, tax frauds, misapplication of funds in receiverships and bankruptcies. These are what Al Capone called “the legitimate rackets”. These and many others are found in abundance in the business world. The book applies this definition by emphasizing that the white-collar offender has legitimate access to resources to commit and conceal crime in the course of occupational and professional activity. Corporate crime is committed during the course of legitimate occupational activity, by persons of high and respectable social status for organizational gain. Corporate white-collar crime benefits the organization more directly than the individuals that committed the offense (Craig and Piquero, 2017; Shichor and Heeren, 2021). White-collar crime is illegal acts that violate responsibility or public trust for personal or organizational gain. It is one act or a series of acts committed by nonphysical means and by concealment to obtain money or property, or to obtain business or personal advantage (Leasure and Zhang, 2018). The offender has legitimate access, where legitimacy is a generalized perception or assumption that the actions of an individual are desirable, proper, and appropriate within some socially constructed system of norms, roles, and values (Fitzgibbon and Lea, 2018). Legitimacy is an assessment of the appropriateness of an individual’s

40 White-Collar Offenders actions (Bundy and Pfarrer, 2015). The offender has high social status and power, and enjoys respectability. Given the offender-based perspective, the text in this book disagrees with Galvin et al. (2018) who includes all kinds of non-violent crime with financial motive. For us, identity theft or credit card abuse in a private context is not whitecollar crime. Bank fraud or CEO fraud using the internet in a private context is not white-collar crime. A distinct term like white-collar crime can lose meaning by including more and more offenders and offenses. While it is certainly true that many wear white collars, everyone knows what the term means in criminology. It is financial crime by members of the elite in society. Those who attempt to stay above the law and feel they are too powerful to fail and too powerful to jail – those are the typical white-collar offenders (Pontell et al., 2014). White-collar criminology makes a distinction between occupational crime and corporate crime. Self-interested individuals commit occupational crime in their profession against their employers (e.g., embezzlement or receipt of bribes) and other victims (Shepherd and Button, 2019). Organizational officials commit corporate crime in the larger interests of an organization, such as bribing potential customers, avoiding taxes by evasion, and misrepresenting accounting to get unjustified government subsidies. As argued by Alalehto (2018), an organization does not think or act by itself because it lacks ethical, philosophical, sociological, and psychological properties. Therefore, offenders of both occupational crime and corporate crime are individuals. Nevertheless, a corporation is a legal entity with its own rights and its own obligations. Rights include copyrights and other protection regulations. Obligations include tax payments, environmental protection, and other duties that rest with the organization rather than individuals in the organization. By corporate crime, individuals such as board members and chief executives serve to benefit the organization. Of course, individuals may benefit personally as a side effect of the corporate financial crime since the interests of the organization may coincide with the interests of individual members. While a corporation cannot feel, does not have a mind, and does not think, the corporation nevertheless acts and is the actor when executives and others attempt to improve organizational performance in illegal ways (Bundy and Pfarrer, 2015; Scott and Lyman, 1968). The organizational connection of white-collar offenses is particularly evident when crime is committed on behalf of the business. The organizational anchoring of crime is obvious in corporate offenses as crime takes place within the business and to the benefit of the business (Bradshaw, 2015). While offenders often hide occupational crime individually to enrich themselves by abusing corporate resources (Hansen, 2009; Shepherd and Button, 2019), corporate crime is often hidden by a group of individuals to improve business conditions. The offender-based white-collar perspective originates from Edwin Sutherland. Sutherland is one of the most cited criminologists in the history of the criminology research field. Sutherland’s work has inspired and motivated a large number of scholars in the field associated with his work. His ideas influence, challenge, and incentivize researchers. Sutherland based his research on white-collar crime on his own differential association theory. This learning theory of deviance focuses on

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how individuals in organizations learn to become criminals. Differential association theory assumes that individuals learn criminal behavior in interaction with other persons. Berghoff and Spiekermann (2018: 290) are among those emphasizing the importance of Sutherland’s work: The assessment of the offences committed in the corporate world began to change in light of the theories of sociologist and criminologist Edwin Hardin Sutherland, who not only established the criminological term “white-collar crime” in 1939, but also made clear that crimes were not exclusively committed by lower-class offenders. Sutherland, who had among other things previously worked on juvenile delinquents in ghettos of recent immigrants, pointed to certain parallels such as the influence of cultural milieus. This concept violated existing prejudices that high-ranking persons would not or only in highly exceptional circumstances commit crimes and that economic crimes were due to “merely technical violations”, which “involve no moral culpability”. Sutherland, who is considered one of the most influential criminologists of the twentieth century, vehemently contradicted widespread views that criminality was caused by poverty or biological and psychological factors. Sutherland’s (1939, 1983) concept of white-collar crime has been so influential for various reasons. First, there is Sutherland’s engagement with criminology’s neglect of the kinds of crime of the powerful and influential members of the elite in society. Next, there is the extent of damages caused by white-collar crime. Sutherland emphasized the disproportionate extent of harm caused by the crime of the wealthy in comparison to the much researched and popular focus on crime by the poor, and the equally disproportionate level of social-control responses. Third, there is the focus on organizational offenders, where crime occurs in the course of their occupations. A white-collar criminal is a person who, through the course of his or her occupation, utilizes his or her own respectability and high social status to perpetrate an offense. Fourth, the construction of the corporation as an offender indicates that organizations might be accountable for misconduct and crime. Finally, there is the ability to theorize the deviant behaviors of elite members. Sutherland’s groundbreaking challenge of mainstream criminology as neglecting the crime of the upper class and the dominating focus on crime of the poor has inspired many researchers. This was a major insight that began a dramatic shift and broadening in the subject matter of criminology that continues today. While Sutherland’s concept of white-collar crime has enlightened sociologists, criminologists, and management researchers, the concept may have confused attorneys, judges, and lawmakers. In most jurisdictions, there is no offense labeled white-collar crime. There are offenses such as corruption, embezzlement, tax evasion, fraud, and insider trading, but no white-collar crime offense. Researchers consider one of the strengths of Sutherland’s work his argument that laws and legal distinctions produced by the elite are politically and socially determined. For lawmakers, there is nothing intrinsic to the character of white-collar offenses, which makes them somehow different from other types of offenses.

42 White-Collar Offenders One reason for this confusion is that white-collar crime in Sutherland’s research is both a crime committed by a specific type of person and a specific type of crime. Later research has indicated, as applied in this book, that corporate crime is not a specific type of crime; it is only a crime committed by a specific type of individual in a corporate setting. However, white-collar crime may indeed sometime in the future emerge as a kind of crime suitable for law enforcement as Sutherland envisaged it in his offender-based approach to crime, focusing on characteristics of the individual offender to determine the categorization of the type of crime. While white-collar criminal as a term was introduced by Sutherland in 1939, other terms such as robber baron had been introduced several decades earlier. Robber barons are the powerful and wealthy in the upper class of society who define what is right and what is wrong, and who change the laws when they themselves are in danger of breaking the laws (Petrocelli et al., 2003). The rich and mighty people can behave like robber barons because they make the laws and because they control law enforcement. Spiekermann (2018: 363) presents the case of the Spreckels family as an example of robber barons: Claus Spreckels (1828–1908) was surely one of the notorious “robber barons” of the time… When in 1876 the Kingdom of Hawaii and the United States arranged a first reciprocity treaty, which included a bounty for cane sugar imports to the United States, Spreckels took his chance and erected, after corrupting the king and the government, large-scale sugar plantations. Within a few years, Claus Spreckels established a vertically integrated sugar empire, which not only included plantation and refining but also financing, transport and wholesale trade. Although harshly criticized for exploiting coolie work and corrupting the Sandwich Islands, his political influence in California and Washington, DC generated continuous political support for his business interests. Sutherland’s broader engagement with criminological and sociological theory in general, such as his theory of differential association and social learning, has been and is influential. One aspect of the theory of differential association – social disorganization – has had a significant influence on later researchers. Sutherland’s work is the foundation in all teaching, research, and policing of white-collar corporate crime today.

Corporate Crime Seriousness Alcadipani and Medeiros (2020) found that corporate crime tends to be perceived as and treated as corporate irresponsibility and not as misconduct, wrongdoing, offending, and law violation. People who do not profit from corporate activity and are victims of displacement, unemployment, and misery are the result of irresponsibility and not crime. Debates around companies’ social irresponsibility emerged from a dissatisfaction with corporate initiatives that claimed to be socially responsible. While the management literature had been dominated by CSR (corporate

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social responsibility), the management practice has been dominated by CSIR (corporate social irresponsibility), where corporate harmful actions are considered mere irresponsibility. Social irresponsibility is the choice of an action that is inferior to an alternative action when the effects upon all stakeholders are considered. The action may involve a gain by one party at the expense of the total system. Davies (2020) found that relatively few harmful actions by corporations are criminalized or subject to prosecution. Examples of CSIR are environmental disasters, corruption scandals, and corporate actions that harm customers and employees. While receiving the less serious label of irresponsibility, most examples should receive the label of crime. Neither companies nor executives are prosecuted. CSIR can harm companies in the form of reputation loss that can cause difficulties in attracting customers, investors, and employees (Alcadipani and Medeiros, 2020: 288): CSIR can also produce moral anger on the part of important stakeholders, and media coverage of CSIR increases the financial risk for companies involved in “acts of irresponsibility”. Nevertheless, the main characteristics of the CSIR perspective are that corporate environmental crime can be excused as irresponsible environmental degradation and pollution that are inevitable, that corporate financial crime can be excused by criminal market forces, and that labor law violations can be excused by legitimate exploitation of employees as resources. Similarly, to Alcadipani and Medeiros (2020), Oliveira and Silveira (2020: 1) used the lenses of the Global South in Brazil when discussing corporate crime by the Global North in their essay: The basic premise of the essay is that corporate crimes occur in a corporate dynamic, the main force of contemporary capitalism over the world. We use the post-colonial thinking, more specifically the concepts of necrocapitalism, a version of contemporary capitalism characterized by imperialism, which refers to contemporary forms of accumulation, which involve the subjugation of life to the power of death. Oliveira and Silveira (2020) found that, in many countries, the idea that corporations do not commit crime still prevails. Also, the role of law is ambiguous concerning corporate damage. There is an impossibility of charging corporations with crime. Corporations are considered entities, while criminal laws derive from individual principles, and the laws and punishments imputed to individuals cannot be imputed to corporations. The legal systems of different countries react to corporate offenses in various ways, where the most common characteristic of reactions seems to be a combination of helplessness by local authorities and varying perceptions of seriousness and responsibility. Corporate crime seriousness can be influenced by the perception of corporations. As argued by Alalehto (2018), an organization does not think or act by

44 White-Collar Offenders itself because it lacks ethical, philosophical, sociological, and psychological properties. Therefore, offenders of both occupational crime and corporate crime are individuals as natural persons. Two years later, Alalehto (2020: 112) claimed that the concept of corporate crime is a logical contradiction as long as the corporation was defined as the offender who implicitly can think and act: Thus, the corporation was assumed to have a consciousness and ability to act morally and ethically given the principles of the social contract in the same way as a physical individual. So, if the corporation did something illegal it could be accused of being an offender acting immorally in relation to the law of the contextual society. But this basic philosophical assumption led to one fundamental theoretical problem for the research of corporate crime, i.e., the impossible task of finding the cause of crimes committed by fictitious persons. Therefore, people within corporations commit crime, not the corporation itself. Even if it is difficult to identify the person or persons who committed the crime, it is still people who commit crime. The advantage for corporate offenders is that they can hide behind the gates of the corporation, thereby making it even more challenging to attribute blame to them. Large corporations typically have gatekeepers such as public relations departments, media spokespersons, and internal and external lawyers who assist in secrecy and confidentiality. The corporation can initially be blamed for a scandal, yet corporate accounts and the secrecy of offenders can make corporate crime seem less serious (Dewan and Jensen, 2020; Schoultz and Flyghed, 2020a, 2020b, 2021a, 2021b). Structural conditions influence individual decision-making in organizations. A facilitative culture can neutralize offender responsibility for deviant behavior. However, a crime-facilitative culture cannot cause criminality in itself. It is still individuals who decide to take criminal action (Alalehto, 2020). The seriousness of corporate crime might depend on who is the victim (Levi and Jones, 1985). Research results have indicated that crime is considered more serious if the victim is an individual rather than an organization. The difference may reveal an underlying attitude that organizations, given their presumed levels of collective resources, can better survive victimization (Cullen et al., 1982). Generally, crime seriousness seems dependent on the perceived consequences of the perceived wrongfulness. When Sutherland (1939) introduced the term white-collar crime, he wanted to draw attention to the fact that anyone, regardless of social class, can commit criminal acts (Piquero, 2018). He emphasized privileged individuals in positions that they could abuse to commit and conceal crime, and he emphasized corporations involved in corruption and fraud. He emphasized elite offenses that the public and the criminal justice system should take more seriously. Eighty years later, Piquero (2018) argued that white-collar crime is a growing problem in terms of both the numbers of people affected as well as the amount of harm caused to victims. Nevertheless, people do not necessarily consider whitecollar crime to be very serious. Michel (2016) found that white-collar offenders

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are still significantly more likely to avoid criminal indictment, prosecution, conviction, and incarceration compared with street offenders. White-collar crime is hard to detect, and detection is obviously a precondition for any indictment and prosecution (Friedrich, 2021). It is usually obvious when a street crime has occurred, while financial crime by the elite usually is less apparent (Cullen et al., 2006: 346): The difference in visibility is tied directly to the nature of the crimes involved in each offense category. Missing property, a mugging, or an assault are forced upon a victim’s attention. By contrast, the very structure of most corporate acts insulates workers or citizens from knowledge of their victimization. Typically, corporate offenders are not present physically at the scene of the crime, and the effects of their victimization are diffused over time. Logan et al. (2019) argued that public support for the indictment, prosecution, conviction, and imprisonment of white-collar offenders is on the rise. However, some studies show an association between political ideology and punitive philosophies, where conservatives favor greater control and punishment of traditional street crime as compared to liberals. Features of each political perspective suggest that the association is a reversal when it comes to white-collar crime. Reducing and punishing white-collar offenders may seem more important to liberals than to conservatives (Unnever et al., 2009). This reversion of attitudes is in line with the switch hypothesis (Zimring and Hawkins, 1978). Logan et al. (2019: 225) further argued that the number of people incarcerated for white-collar offenses in the United States has been steadily rising for the past two decades: There are now more white-collar offenders in jail or prison than ever before, and public support for the prosecution and imprisonment of white-collar offenders is on the rise. The United States Sentencing Commission reports an increase in the rate of white-collar offenders sentenced to federal prison. For example, between 1997 and 2009, the incarceration rate for fraud rose from 64.8 to 74.9 and has remained stable through 2015. Long et al. (2021: 1) found only one difference that relates to violence regarding white-collar inmates compared to other inmates in prison: This study examines the behaviors of people convicted of white-collar offenses to determine if white-collar prisoners are truly distinct from those who were found guilty of other types of offenses. Using data from a large Midwestern state we identified 1867 prisoners convicted of white-collar offenses and compared them to 55,756 prisoners who were not convicted of white-collar offenses. Binary logistic regression models were used to control for the effects of potential confounders. The likelihood of being found guilty of various types of misconduct and forms of recidivism were calculated. White-collar prisoners

46 White-Collar Offenders were found to have significantly different characteristics than other types of prisoners, but the multivariate models found that they were not significantly different in terms of their likelihood of being found guilty of most types of misconduct (i.e., resistance to orders, property misconduct, drug-related misconduct, or other misconduct). White-collar prisoners were not more or less likely to return to prison for any reason. The only significant distinction between white-collar prisoners and other types of prisoners was their reduced likelihood of being found guilty of violent misconduct. White-collar offenders are individuals who had high occupational status. The sentencing outcome can reflect the seriousness of their crime. Some research finds that high occupational status decreases punishment, showing that auto thieves receive a harsher punishment compared to physicians involved in medical fraud (Tillman and Pontell, 1992). Other research finds that occupational status increases punishment, with higher occupational status healthcare professionals given more severe sentences than lower-level healthcare professionals (Payne et al., 2011). Still other research finds no effect at all from occupational status on the length of prison sentence for white-collar offenders. Perceptions of crime seriousness in the population still distinguish between offenses resulting in physical harm and the ones not resulting in such harm. Public opinion thus considers white-collar offenses not resulting in physical damages as not very serious. In a study by Isenring (2008), white-collar offenses are severely condemned, even when there is no physical harm involved in the crime. The study seems to show a greater sensitivity with respect to white-collar offenses, especially towards white-collar crime perpetrated by corporations, such as a corporation bribing a public official. On the other hand, the study showed a difference between street crime and white-collar crime with regard to punishment. Respondents preferred a more severe sentence passed on street criminals than on whitecollar offenders. When perceptions of crime seriousness distinguish between offenses resulting in physical harm and no such harm, it is interesting to notice the perceptions of rising seriousness of environmental crime by corporate offenders. Environmental harm and crime have received increased attention in recent years (Budo, 2021; Böhm, 2020; Gibbs and Boratto, 2017; Huisman and Van Erp, 2013; Lynch, 2020). Physical harm often results from environmental crime by corporate offenders (Van Erp, 2020). Goossen et al. (2016) studied relationships between basic human values and white-collar crime. They tested seven value constructs in relation to three types of white-collar crime: tax evasion, insurance fraud, and bribery. They found that the relationships between values and white-collar offenses are particularly evident for values of universalism, power, and stimulation. Universalism is a value concerned with understanding, appreciation, tolerance, and protection of the welfare of all people and of nature. Power is a value concerned with social status and prestige, and control or dominance over people and resources. Stimulation is a value concerned with excitement, novelty, and challenge in life. While universalism and

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stimulation were positively associated with the condemnation of white-collar crime, power had a negative association as a value construct. The seriousness of white-collar elite crime was emphasized by Hausman (2018: 392) who found that offenders present “a long-term danger to the U.S. business climate”. Honest businesspersons – who must have access to capital to succeed – suffer because financial investors, public authorities, and the general public lose faith in business enterprises. Long et al. (2021: 1) also emphasized the seriousness of white-collar crime: The social and financial costs of white-collar crime are significant and well-surpass the collective toll amassed by conventional “street” crime. The threat and severity of white-collar crime is reflected in public opinion polls which demonstrate the public’s growing distrust of, and disdain for, those who commit white-collar offenses. As a group, white-collar offenders are seen as “bad guys” whose transgressions are deserving of harsh punishment, especially imprisonment. This sentiment is further evinced by the sentencing patterns of white-collar offenders over the last two decades. Official statistics show that there are currently more whitecollar offenders in prison and jail than ever before – both in terms of incarceration rate and average sentence length. Between 1997 and 2009, the rate of incarceration for fraud rose from 64.8 to 74.9 and has remained stable through 2019; a pattern which also holds for other white-collar crimes including bribery offenses (58.9 to 79.3), counterfeiting (65.1 to 70.0), and tax violations (45.6 to 58.8). The average prison sentence for fraud also more than doubled between 1998 (12.9 months) and 2015 (27 months). Comparable observations have been made for forgery and counterfeiting offenses (10.7 to 16 months), tax violations (8.5 to 13 months), and bribery offenses (12.7 to 27 months). Corporate crime seriousness is linked to corporate criminal liability. Lack of liability is a concept that features across regulatory offenses, financial crime, and environmental crime which disables the attribution of liability to corporations in criminal courts (Whyte, 2014). Hamdani and Klement (2008: 271) found that the doctrine of corporate liability is notoriously controversial: For decades, scholars have argued that imposing criminal liability on business entities is both ineffective and inconsistent with the fundamental principles of individual culpability and moral condemnation underlying criminal law. It is therefore not surprising that the federal government’s post-Enron campaign against corporate crime has reignited debate over the proper use of criminal law to target business enterprises. Not only is the doctrine of corporate liability controversial, but the doctrine also discourages disclosure of wrongdoing (Patterson, 2021: 423): Under the doctrine of respondeat superior, U.S. corporations have long been held criminally liable for the conduct of employees acting within the scope of

48 White-Collar Offenders their employment. Standing alone, this de jure system of enforcement provides perverse incentives to corporations dealing with internal malfeasance; the threat of vicarious liability discourages corporations from seeking to discover, disclose, and investigate because such efforts will only assist enforcement authorities in imposing higher corporate sanctions. The Department of Justice has, in a series of revisions to the Justice Manual, attempted to counteract this dynamic by emphasizing individual, rather than corporate-level, liability in prosecuting business organizations, developing a de facto regime for sanctioning and controlling corporate crime. The government in the United States made both the energy company Enron and the consulting firm Arthur Andersen collapse because of accounting fraud and destruction of evidence. At Arthur Andersen, 28,000 employees lost their jobs. Corporate fines in the United States can be of such a magnitude that the fined company goes bankrupt. This is very different from government fines in other countries that are mainly symbolic rather than harmful. For example, when construction companies are fined in Norway for their cartel activity as described later in this book, the modest money amounts do not really harm their businesses. Those in favor of harsh corporate penalties posit that only the threat of going out of business can effectively deter organizational misconduct (Hamdani and Klement, 2008). A general perspective is that entities do not commit crime; individuals do. Corporations cannot be imprisoned; only individuals can (Fischel and Sykes, 1996: 320): Corporations are legal fictions, and legal fictions cannot commit criminal acts. Nor can they possess mens rea, a guilty state of mind. Only people can act and only people can have a guilty state of mind. A competing perspective is that employees and executives are agents for their corporations. Then the corporations can and should be criminally prosecuted for criminal acts of their agents. In the terminology of principal–agent theory, the corporation might be defined as the principal, while executives are agents. The principal–agent theory suggests that the organization is a nexus of contracts. A corporation is a web of contractual relationships consisting of individuals who band together for their mutual economic benefit (Fischel and Sykes, 1996). The theory argues that a principal is often unable to control an agent who does work for the principal, while at the same time being responsible for the agent’s behavior (Bosse and Phillips, 2016; Chrisman et al., 2007; Pillay and Kluvers, 2014).

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Slyke, S.R.V. and Bales, W.D. (2013). Gender dynamics in the sentencing of white-collar offenders, Criminal Justice Studies, 26 (2), 168–196. Sohoni, T. and Rorie, M. (2021). The whiteness of white-collar crime in the United States: Examining the role of race in a culture of elite white-collar offending, Theoretical Criminology, 25 (1), 66–87. Spiekermann, U. (2018). Cleaning San Francisco, cleaning the United States: The graft prosecutions of 1906–1909 and their nationwide consequences, Business History, 60 (3), 361–380. Stadler, W.A., Benson, M.L. and Cullen. F.T. (2013). Revisiting the special sensitivity hypothesis: The prison experience of white-collar inmates, Justice Quarterly, 30 (6), 1090–1114. Storbeck, O. (2021a). Prosecutors delayed arrest warrant for Wirecard’s Jan Marsalek, Financial Times, www.ft.com, published January 29. Storbeck, O. (2021b). German parliament expands probe into EY’s audits of Wirecard, Financial Times, www.ft.com, published April 22. Storbeck, O. and Morris, S. (2021). BaFin files insider trading complaint against Deutsche Bank board member, Financial Times, www.ft.com, published April 19. Sutherland, E.H. (1939). White-collar criminality, American Sociological Review, 5 (1), 1–12. Sutherland, E.H. (1983). White Collar Crime: The Uncut Version, New Haven, CT: Yale University Press. Tillman, R. and Pontell, H.N. (1992). Is justice “collar-blind”? Punishing Medicaid provider fraud, Criminology, 30, 547–574. Unnever, J.D., Benson, M.L. and Cullen, F.T. (2009). Public support for getting tough on corporate crime: Racial and political divides, Journal of Research in Crime and Delinquency, 45 (2), 163–190. Van Erp, J. (2020). The role of private actors in the regulation and enforcement of corporate environmental harm, in: De Cock Buningh, M. and Senden, L. (eds.) Private Regulation and Enforcement in the EU: Finding the Right Balance from a Citizen’s Perspective, London, UK: Bloomsbury Publishing. pp. 353–374. Veblen, T. (1899). The Theory of the Leisure Class: An Economic Study of Institutions, New York, NY: Macmillan. Wheelock, D., Semukhina, O. and Demidov, N.N. (2011). Perceived group threat and punitive attitudes in Russia and the United States, British Journal of Criminology, 51, 937–959. Whittaker, J.M. and Button, M. (2020). Understanding pet scams: A case study of advance fee and non-delivery fraud using victims’ accounts, Australian & New Zealand Journal of Criminology, published online, doi:doi:10.1177/0004865820957077. Whyte, D. (2014). Regimes of permission and state-corporate crime, State Crime Journal, 3 (2), 237–246. Yasir, A., Ahmed, A. and Anum, L. (2021). Corporate financial crimes in Pakistan – a review and analysis, Journal of Financial Crime, published online, doi:doi:10.1108/ JFC-2021-0233. Zhu, D.H. and Chen, G. (2015). CEO narcissism and the impact of prior board experience on corporate strategy, Administrative Science Quarterly, 60 (1), 31–65. Zimring, F.E. and Hawkins, G. (1978). Ideology and euphoria in crime control, University of Toledo Law Review, 10, 370–388.

4

Theory of Convenience

The theory of convenience suggests that a strong financial motive from possibilities and threats, an attractive organizational opportunity in a professional setting, and a high-level willingness for deviant behavior increase the likelihood of misconduct, wrongdoing, and crime. Convenience theory was first introduced in 2017 in terms of the core concept of convenience in white-collar crime (Gottschalk, 2017). Since then, several empirical tests and case studies with applications of convenience theory have been published (e.g., Braaten and Vaughn, 2019; Dearden and Gottschalk, 2020; Stadler and Gottschalk, 2021). The theory has received favorable reviews (e.g., Hansen, 2020; Oka, 2021; Vasiu and Podgor, 2019).

Crime Convenience Orientation What privileged individuals in the elite think and feel about time and effort varies. Because of the overwhelming workload, combined with a need to prioritize one’s own time, convenience is often at the core of thinking among chief executives in organizations (Bigley and Wiersma, 2002; Kahneman, 2011). Chen and Nadkarni (2017: 34) found that many CEOs can be characterized by time urgency where they have the feeling of being chronically hurried: Time urgency is a relatively stable trait. Time-urgent people are acutely aware of the passage of time and feel chronically hurried. They often create aggressive internal deadlines and use them as markers of the timely completion of team tasks. They regularly check work progress, increase others’ awareness of the remaining time, and motivate others to accomplish commitments within the allotted time. Convenience orientation is introduced in this book as an explanation for whitecollar crime among CEOs and other privileged individuals in politics, public administration, and private businesses. This book thus makes a case for a specific way of explaining elite member behavior. The notion of convenience may seem rather obvious and not especially illuminating. When convenience orientation is simply defined as the degree to which a trusted individual is inclined to save time, effort, and pain to reach a goal, then it DOI: 10.4324/9781003302254-4

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might sound more like an aspect of prudence rather than deviant criminal behavior. However, as pointed out in this book, some CEOs will employ illegal or objectionable means in striving to reach goals. This type of behavior is not necessarily different from the behavior of others in positions of power and authority (e. g., politicians, officers of universities, church officials, heads of major philanthropic organizations, etc.), but the degrees of freedom enjoyed by many CEOs make the CEO position nevertheless very special in terms of convenience. Saving of time is one of the elements in convenience orientation. Individuals have different perspectives on their own past, present, and future time dispositions (Gamache and McNamara, 2019: 923): This view suggests a distinction between objective perspectives of time (clock time) and subject perspective of time (psychological time). Recent research finds that psychological perspectives of time have important implications for how people behave and the decisions that they make. Gamache and McNamara (2019: 923) find that those executives who mainly focus on their present time disposition have “the proclivity to act impulsively, move quickly with current opportunities, and consider current issues when making decisions”. A future time focus tends to increase the mental time span and reduce the perception of urgency. Convenience orientation is conceptualized as the value that individuals and organizations place on actions with inherent characteristics of saving time and effort as well as avoiding strain and pain. Convenience orientation can be considered a value-like construct that influences behavior and decision-making. Mai and Olsen (2016) measured convenience orientation in terms of a desire to spend as little time as possible on the task, in terms of an attitude that the less effort needed the better, as well as in terms of a consideration that it is a waste of time to spend long hours on the task. Convenience orientation toward illegal actions increases as negative attitudes towards legal actions increase. The basic elements in convenience orientation are the individual attitudes toward the saving of time, effort and discomfort in the planning, action, and achievement of goals. Generally, convenience orientation is the degree to which an individual or a group of individuals are inclined to save time and effort to reach goals. Convenience orientation refers to a person’s or persons’ general preference for convenient maneuvers. A convenience-oriented person is one who seeks to accomplish a task in the shortest time with the least expenditure of human energy (Berry et al., 2002; Farquhar and Rowley, 2009). In the marketing literature, convenience orientation is, for example, measured in terms of the stage in a person’s life cycle, family size, economic status, social status, and education (Sundström and Radon, 2015). Similar characteristics of convenience orientation might be developed for individuals in the elite regarding white-collar crime. Convenience in the decision-making process is not only concerned with one alternative being more convenient than another alternative. Convenience is also

56 Theory of Convenience concerned with the extent to which an individual collects information about more alternatives and collects more information about each alternative. Market research indicates that consumers tend to make buying decisions based on little information about few alternatives (Sundström and Radon, 2015). A similar process can be explored for white-collar crime where the individual avoids the effort of collecting more information about more alternatives that might have led to a noncriminal rather than a criminal solution to a challenge or problem. It is not the actual convenience that is important in convenience theory. Rather, it is the perceived, expected, and assumed convenience that influences the choice of action. Berry et al. (2002) make this distinction explicit by conceptualizing convenience as individuals’ time and effort perceptions related to an action. Whitecollar criminals probably vary in their perceived convenience of their actions. Low expected convenience can be one of the reasons why more members of the elite do not commit white-collar offenses. Convenience is of value because time and effort are associated with value. Time is a limited and scarce resource. Saving time means reallocating time across activities to achieve greater efficiency. Similarly, effort can be reallocated to create value elsewhere. The more effort is exerted, the more outcomes can be expected in return (Berry et al., 2002). Convenience in white-collar crime relates to savings in time and effort by privileged and trusted individuals to reach a goal. Convenience is here an attribute of an illegal action. Convenience comes at a potential cost to the offender in terms of the likelihood of detection and future punishment. In other words, reducing time and effort now entails a greater potential for future cost. ‘Paying for convenience’ is a way of phrasing this proposition (Farquhar and Rowley, 2009). Convenience is the perceived savings in time and effort required to find and to facilitate the use of a solution to a problem or to exploit favorable circumstances. Convenience directly relates to the amount of time and effort that is required to accomplish a task. Convenience addresses the time and effort exerted before, during, and after an activity. Convenience represents a time and effort component related to the complete illegal transaction process or processes (Collier and Kimes, 2012).

Financial Possibilities and Threats The combination of motive, opportunity, and willingness determines the extent of white-collar crime convenience as illustrated in the model in Figure 4.1. The motive is either possibilities or threats, and the illegitimate gain from crime ends up at the individual level or the corporate level. Possibilities for the corporation include reaching business objectives by ignoring whether or not means are legitimate or illegitimate (Campbell and Göritz, 2014; Jonnergård et al., 2010; Kang and Thosuwanchot, 2017). Ends simply justify means that might represent crime. It may be so important to have a bottom line in accounting that satisfies investors and others that crime emerges as potentially acceptable. Dodge (2009: 15) suggests that tough rivalries among executives

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INDIVIDUAL POSSIBILITIES CORPORATE MOTIVE

INDIVIDUAL THREATS CORPORATE STATUS

CONVENIENCE

COMMIT OPPORTUNITY

ACCESS DECAY

CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS INNOCENCE

JUSTIFICATION NEUTRALIZATION

Figure 4.1 Structural model of convenience theory

make them commit crime to attain goals: “The competitive environment generates pressures on the organization to violate the law in order to attain goals.” Goalsetting is often perceived in a positive light, meaning that ambitious goals increase performance (Locke and Latham, 2013). However, there is also evidence suggesting that high performance goals can lead to unethical behavior (Simmons, 2018). Welsh et al. (2020) argue that this is not only because of rewards associated with goal attainment, but also because of changing moral reasoning processes related to the goal. As such, high goal commitment facilitates unethical behavior by increasing not only the motivation to achieve the goal but also the motivation to justify doing so by any means necessary (Locatelli et al., 2017). This is known as state moral disagreement, a process through which individuals justify unethical behavior (Moore, 2015). It is part of the dark side of ambitious goals. Escalation of commitment to ambitious goals increases the likelihood of misconduct and crime (Sleesman et al., 2012, 2018). Corporate greed implies that the organization is never satisfied, as it always wants more profit (Goldstraw-White, 2012). Greed reflects needs and desires that

58 Theory of Convenience are socially constructed, and the needs and desires can never be completely covered or contended. There is a strong preference to maximize wealth for the corporation, possibly at the expense of violating the laws, rules, and guidelines. Economic greed is a strong motive for financial crime (Bucy et al., 2008; Hamilton and Micklethwait, 2006). Sajko et al. (2021: 961) studied CEO greed where they defined greed as selfinterest by excessive materialistic desire and lack of concern for the well-being of others: Greed, which is most commonly defined as an excessive materialistic desire to acquire personal wealth, can be seen as the “dark” end of the self-interest continuum – that is, hyper-self-interest […] While self-interest is morally neutral, greed carries a moral charge […] Greed by definition implies a lack of concern for the well-being of others. Corporations enter into exchange relationships with suppliers, customers, banks, consultants, and others. Exchanges can be thought of as discrete events nested within continuous relationships that are developing and changing over the course of time. Reciprocity such as kickbacks might be natural according to expectations in an exchange relationship to secure future business possibilities (Huang and Knight, 2017). Finally, in the motive of possibilities for corporations, making as much profit as possible might be the ultimate goal (Naylor, 2003). Rather than viewing profits as an enabler to invest and expand, profits as such might be the final goal in itself. Financial crime can be an attractive strategic decision (Lopez-Rodriguez, 2009; Menon and Siew, 2012). Moving down in Figure 4.1 to threats, the threat of corporate collapse and bankruptcy might cause exploration and exploitation of illegal avenues to survive, where moral panic can occur (Kang and Thosuwanchot, 2017). The survival of the corporation can become so important that no means come across as unacceptable in the current situation. Sometimes, fraud and corruption are considered temporary measures to recover from a crisis (Geest et al., 2017), where the measures will be terminated when the crisis is over. A crisis is a fundamental threat to the organization, which is often characterized by ambiguity of cause, effect, and means of resolution (König et al., 2020). Financial balance is a strong motive for corporate economic crime (Brightman, 2009). In some markets, the only way to survive is to implement financial practices similar to those applied by competitors. If corruption is the name of the game, every participant in the market has to provide bribes to stay in business (Berghoff, 2018; Bradshaw, 2015). Furthermore, threats from monopolies are a strong motive for financial crime (Chang et al., 2005). Similarly, if a cartel is the name of the game, the only way to survive might be to join the cartel, where cartel members divide markets among themselves (Freiberg, 2020; Goncharov and Peter, 2019). Threats are often noticed very late, both by individuals and by organizations. Handling threats thus becomes a matter of urgency. Individuals and firms “fail to

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detect threats and prevent calamities not because of an absence of signals or insufficient knowledge (or faulty awareness), but because attention bandwidth and information-processing fidelity are inherently limited” (Downing et al., 2019: 1890).

Organizational Opportunities As illustrated in Figure 4.1, the opportunity structure in the organizational setting consists of convenience in committing and convenience in concealing white-collar crime. Convenient ways of committing crime can derive from the status of the offender and the offender’s access to resources to commit crime. Convenient ways of concealing crime can derive from organizational decay, lack of guardianship, and criminal market forces. Power is relative control over outcomes through the capacity to withdraw rewards or introduce punishments (Berdahl, 2007). Katz (1979) found that financial crime higher up in the organization will be ignored to a larger extent than lower down in the organization, or blame is allocated elsewhere (Keaveney, 2008; Lee and Robinson, 2000; Sonnier et al., 2015). For example, the blame for the ignition switch failure at General Motors was moved away from the chief executive officer and far down the hierarchy to some middle managers in the organization (Jenner Block, 2014). Scapegoating is a version of the blame game (Gangloff et al., 2016). Social disorganization may well occur at the very top of organizations, where chief executives have created large business space for themselves without access for others. The board of directors is then incapable of controlling chief executive activities (Ghannam et al., 2019). Lack of oversight and guardianship might be explained by the agency perspective. The perspective of principal and agent suggests that when a principal delegates tasks to an agent, the principal is often unable to control what the agent is doing. Agency problems occur when principal and agent have different risk willingness and different preferences, and knowledge asymmetry regarding tasks exists (Eisenhardt, 1989). The principal–agent perspective (or simply agency perspective) can illuminate fraud and corruption in an organizational context. The principal may be a board of a company that leaves the corporate management to the chief executive officer. The CEO is then the agent in the relationship. The CEO in turn may entrust tasks to other executives, where the CEO becomes the principal, while people in positions such as chief financial officer (CFO), chief operating officer (COO), and chief technology officer (CTO) are agents. Agents perform tasks on behalf of principals. A CEO may cheat and defraud owners (Khanna et al., 2015; Zahra et al., 2005; Williams, 2008), and a purchasing manager can fool the CEO when selecting vendors (Chrisman et al., 2007) by taking bribes that can cause the company to pay more for inferior quality, for instance. The agency perspective assumes narrow self-interest among both principals and agents. The interests of principal and agent tend to diverge, and the principal has imperfect information about the agent’s contribution (Bosse and

60 Theory of Convenience Phillips, 2016). According to principal–agent analysis, exchanges can encourage illegal private gain for both principal and agent (Pillay and Kluvers, 2014). Managers are viewed as opportunistic agents motivated by individual utility maximization. Taking an economic model of humanity that treats human beings as rational actors seeking to maximize individual utility – when given the opportunity – then executives and other members of the elite will maximize their own utilities at the expense of shareholders and others. As chief executive, the person can sign fake contracts or order fraudulent appraisals that open up the possibility for bank fraud by asking the bank to finance future income based on fake promises from contract partners or fake value assessments for future sale of real estate (McKendall and Wagner, 1997). Misreporting in accounting is often a convenient way of concealing illegal transactions (Qiu and Slezak, 2019). Lack of transparency makes concealment in accounting convenient (Davidson et al., 2019; Goncharov and Peter, 2019). Managers can withhold bad news by accounting misrepresentation (Bao et al., 2019), since financial statements are a substantive component of a firm’s communications with its stakeholders (Gupta et al., 2020). Balakrishnan et al. (2019) found that reduced corporate transparency in accounting is associated with increased corporate tax aggressiveness. Accounting fraud in terms of account manipulation is lacking transparency (Toolami et al., 2019). High social status in privileged positions creates power inequality compared to those without any status in their positions. The perspective of power inequality suggests that, for example, family members in family firms wield significant influence in their firms (Patel and Cooper, 2014). Family members often have legitimate access to firm resources that non-family executives in the firm cannot question. Individuals with high social status in privileged positions can cooperate to create a business climate of “organized irresponsibility” (Berghoff, 2018: 425): The term implies that management had conspired to prevent efficient controls and therefore facilitated and promoted corruption. Leaders reinforce a culture of financial crime by ignoring criminal actions and otherwise facilitate unethical behavior. At the same time, they try to distance themselves from criminal actions (Pontell et al., 2021: 9): High status corporate criminals often go to great lengths to distance themselves from the crimes committed by their subordinates and to hide any incriminating evidence of their role in the decisions that authorized those criminal acts. For many white-collar offenders, there is not much challenge in committing financial crime. They typically have high status and access to relevant resources. The main challenge is often to conceal committed crime, where relevant issues are decay, chaos, and collapse as illustrated in Figure 4.1. Decay in the form of

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institutional deterioration improves conditions of convenience for crime concealment (Barton, 2004; Donk and Molloy, 2008). Institutional deterioration can occur conveniently, resulting from external legitimacy where deviance is the norm (Kostova et al., 2008; Pinto et al., 2008; Rodriguez et al., 2005). An offender’s actions have a superficial appearance of legitimacy also internally, since both legal and illegal actions in the company occur in a manner characterized by disorganization (Benson and Simpson, 2018). Conventional mechanisms of social control are weak and unable to regulate the behavior within the organization (Pratt and Cullen, 2005). Concealment of crime occurs conveniently by simply disappearing among other seemingly legitimate transactions. Social disorganization is the inability of an organization to realize the common values of its members and maintain effective social control. Social disorganization implies that the ability of social bonds to reduce delinquent behavior is absent (Forti and Visconti, 2020; Hoffmann, 2002; Onna and Denkers, 2019). Differential reinforcement of crime convenience develops over time as individuals become vulnerable to various associations and definitions conducive to delinquency. Social disorganization occurs because human nature is selfish, and people are unwilling to share a common culture. In the perspective of life courses with agegraded determinants of crime, it is interesting to notice that white-collar crime represents adult-onset offending. White-collar offenders are people who live more or less conventional law-abiding lives until they are adults and who then commit crime. Moving into the elite as an adult reduces social controls through social bonds (Benson and Chio, 2020). Misconduct and crime can be hard to detect because signals of deviant behavior drown or disappear in noise (Gomulya and Mishina, 2017). Karim and Siegel (1998) define four possible outcomes in the decision matrix of an observer. First, the observer notices a noise signal when it is a crime signal (called a miss). Second, the observer notices a crime signal when it is a crime signal (called a hit). Third, the observer notices a noise signal when it is a noise signal (called a correct identification). Finally, the observer notices a crime signal when it is a noise signal (called a false alarm). The more frequently false alarms and misses occur, the greater the opportunity is to conceal white-collar crime successfully. Szalma and Hancock (2013) found that control functions typically have low signal alertness, and that such functions lack the ability to recognize and interpret patterns in signals. One reason might be that control functions have dysfunctional cognitive style and achievement motivation (Martinsen et al., 2016). Misreporting in accounting is often a convenient way of concealing illegal transactions (Qiu and Slezak, 2019). Since accounting is no machine that can provide correct answers regarding the financial health of a company, since accounting information has limited representational properties, and since accounting cannot fully inform decision-makers (O’Leary and Smith, 2020), determination of final accounting figures is often left to the discretion of financial managers. Shadnam and Lawrence (2011) found that morale collapse increases the tendency to financial crime. In fact, repetition of criminal actions might institutionalize such actions. Dion (2008) found that the larger the corporation, the less deterrence effect

62 Theory of Convenience from laws on financial crime, which may have to do with increased convenience in concealing crime. Lack of oversight and guardianship causes chaos. The agency perspective suggests that a principal is often unable to control an agent who does work for the principal. The agency perspective assumes narrow self-interest among both principals and agents. The interests of principal and agent tend to diverge, they may have different risk willingness or risk aversion, there is knowledge asymmetry between the two parties, and the principal has imperfect information about the agent’s contribution (Bosse and Phillips, 2016; Chrisman et al., 2007; Pillay and Kluvers, 2014; Williams, 2008). According to principal–agent analysis, exchanges can encourage illegal gain for both principal and agent. Concealing crime is convenient also because anyone other than the offender is incapable of making sense of actions that have occurred (Weick, 1995). People tend to trust what an elite member does, based on the authority position occupied by the offender. Sense making links to crime signal detection by the challenge of perceiving and understanding a crime signal versus a noise signal, as discussed above. People without experience are unable to make sense of weak signals from white-collar offenders. They are not able to frame or categorize through words what the signal is about (Holt and Cornelissen, 2014). Even when crime signals are reported to the criminal justice system, police detectives are often unable to successfully investigate financial crime (Gilmour, 2020).

Offender Deviance Willingness As illustrated in Figure 4.1, the willingness is either based on choice or based on innocence. Crime as a choice might be explained by the perceived identity of the offender or by a rational choice where the benefits exceed the costs of crime. Innocence in crime is either based on a justification of offender actions or on neutralization of guilt feelings. The willingness for deviant behavior by the chief executive officer is sometimes in the role of a bad apple in a deviant organization (Bendiktsson, 2010). Schnatterly et al. (2018) found that offenders might explain their acts of wrongdoing as morally justifiable. They found that deviant chief executive officers in particular can refer to pressures and other circumstances that justify their white-collar crime. In a justification, the actor admits responsibility for the act in question but denies its pejorative and negative content (Schoen et al., 2021: 730): People use justification mechanisms to protect their sense of self. People who sincerely believe that they are a specific kind of person but routinely demonstrate behaviors that indicate otherwise may avoid cognitive dissonance and maintain their sense of self by using justification mechanisms that allow them to “explain away” their behavior. Narcissistic organizational identification by some CEOs is one of several perspectives on potential criminal behavior (Galvin et al., 2015). If a CEO says and

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believes in the statement “I am the company”, then the organization can be in for trouble. Narcissism here means seeing oneself as central to the organization’s identity. It is a self-centered form of organizational identification. The CEO may lose his or her independent sense of self and engage in questionable behaviors. Narcissistic organizational identification implies domination of individual identity over organizational identity. CEOs with narcissistic organizational identification feel a strong affinity for their organization’s identity, but as an expression of themselves. They see their own identity as the main reference for understanding what the organization is doing and how it is structured. Removing the separation between the individual and the organization can cause the CEO to think of company money as personal money. While there is considerable variance in narcissistic tendencies across CEOs, many CEOs have narcissistic personality traits such as self-focus, self-admiration, a sense of entitlement, and a sense of superiority (Zhu and Chen, 2015). Galvin et al. (2015: 163) found that: It is not uncommon to learn of individuals in positions of power and responsibility, especially CEOs, who exploit and undermine their organizations for personal gain. A circumstance not well explained in the literature, however, is that some of those individuals may highly identify with their organizations, meaning that they see little difference between their identity and the organization’s identity – between their interests and the organization’s interest. This presents a paradox, because organizational identification typically is not noted for its adverse consequences on the organization. Zhu and Chen (2015: 35) explored narcissism among CEOs: Narcissistic CEOs tend to favor bold actions, such as large acquisitions, that attract attention. They are less responsive than other CEOs to objective indicators of their performance and more responsive to social praise. For instance, while narcissistic CEOs tend to aggressively adopt technological discontinuities, they are especially likely to do so when such behavior is expected to garner attention and admiration from external audiences. One of the neutralization techniques available to chief executives listed below is the claim of their role in society. The act was a natural maneuver among elite members. The offender argues that being a minister in the government or a chief executive officer in a global company is so time-consuming that little time is available for issues that seem trivial. Shortcuts are part of the game. Some shortcuts may be illegal, but they are nevertheless necessary for the elite member to ensure progress. If someone is to blame, then subordinates are supposed to provide advice and control what the elite member is doing. Personal willingness for deviant behavior increases as the gap between two antagonistic forces increases: the push of desires and the pull of self-regulation. Self-control failure arises because an executive experiences a potent and

64 Theory of Convenience overwhelming desire that drives impulsive behaviors, while higher-level executive mental functioning is temporarily or permanently compromised and unable to override behaviors impelled by the desire. Self-control failure is a result of a desire that is too strong to stifle. Generally, self-control reflects an individual’s capacity and motivation to override desires and urges in order to act in accordance with one’s long-range goals (Liang et al., 2016: 1387): Effective human functioning requires the capacity to transcend primal desires and habitual behaviors in order to behave in a socially appropriate manner. When self-control fails, individuals disregard the long-term implications of their behaviors and succumb to their desires, such as eating fatty foods, cheating on a partner, or engaging in unethical behaviors. Ultimately, selfcontrol failure contributes to poor physical and mental health, crime, and lowquality interpersonal relationships. As illustrated in Figure 4.1, the willingness for deviant behavior derives from choice and innocence in convenience theory. White-collar crime can be the result of a choice based on identity, rationality, and learning, and white-collar crime can be the result of innocence based on justification and neutralization. Personal willingness for deviant behavior implies a positive attitude towards violating social norms, including formally enacted laws, rules, and regulations (Aguilera et al., 2018). The personality trait of narcissism expects preferential treatment. A pervasive pattern of grandiosity, a need for admiration, and an empathy deficit characterize narcissism. Narcissistic identification is a special type of narcissism, where the offender sees little or no difference between self and the corporation. Company money is personal money that can be spent in whatever way the narcissist prefers (Galvin et al., 2015). While grandiosity and admiration belong to the motivational dimension of convenience theory, empathy deficit belongs to the willingness dimension of convenience theory where the offender possesses a sense of entitlement (Nichol, 2019). The offender shows unreasonable expectations to receive and obtain preferential treatments (Zvi and Elaad, 2018). The choice of crime might derive from sensation seeking. Craig and Piquero (2017) suggest that the willingness to commit financial crime by some white-collar offenders has to do with their inclination for adventure and excitement. Offenders are not only seeking new, intense, and complicated experiences and sensations, as well as exciting adventures, but they are also accepting the legal, physical, financial, and social risks associated with these adventures. Learning from others by differential association was introduced by Sutherland (1983), who coined the term white-collar crime several decades earlier. The differential association perspective suggests that offenders associate with those who agree with them, and distance themselves from those who disagree. The choice of crime is thus caused by social learning from others with whom offenders associate (Akers, 1989). Innocent justification can occur as the offender feels entitled to financial crime after negative life events (Engdahl, 2015). The perspective of negative life events

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suggests that events such as divorce, accident, lack of promotion, and cash problems can cause potential offenders to consider white-collar crime a convenient solution. By application of neutralization techniques (Sykes and Matza, 1957), they deny responsibility, injury, and victim. They condemn the condemners. They claim appeal to higher loyalties and normality of action. They claim entitlement, and they argue the case of legal mistake. They find their own mistakes acceptable. They argue a dilemma arose, whereby they made a reasonable trade-off before committing the act (Jordanoska, 2018; Kaptein and Helvoort, 2019). Such claims enable offenders to find crime convenient, since they do not consider it crime, and they do not feel guilty of wrongdoing. These are the most frequently cited neutralization techniques in the research literature for white-collar offenders: 1 Disclaim responsibility for crime: Not responsible for what happened. The offender here claims that one or more of the conditions of responsible agency did not occur. The person committing a deviant act defines himself or herself as lacking responsibility for his or her actions. In this technique, the person rationalizes that the action in question is beyond his or her control. The offender views himself as a billiard ball, helplessly propelled through different situations. He denies responsibility for the event or sequence of events. 2 Refuse damage from crime: There is no visible harm from the action. The offender seeks to minimize or deny the harm done. Denial of injury involves justifying an action by minimizing the harm it causes. The misbehavior is not very serious because no party suffers directly or visibly because of it. 3 Refuse victim from crime: There is nobody suffering from the action. The offender may acknowledge the injury but deny any existence of victims or claims that the victim(s) are unworthy of concern. Any blame for illegal actions is unjustified because the violated party deserves whatever injury they receive. 4 Condemn those who criticize: Outsiders do not understand relevant behavior. The offender tries to accuse his or her critics of questionable motives for criticizing him or her. According to this technique of condemning the condemners, one neutralizes one’s own actions by blaming those who were the target of the misconduct. The offender deflects moral condemnation onto those ridiculing the misbehavior by pointing out that they engage in similar disapproved-of behavior. In addition, the offender condemns procedures of the criminal justice system, especially police investigation with interrogation, as well as media coverage of the case. 5 Justify crime by higher loyalties: It was according to expectations. The offender denies the act was motivated by self-interest, claiming that it was instead done out of obedience to some moral obligation. The offender appeals to higher loyalties. Those who feel they are in a dilemma employ this technique to indicate that the dilemma must be resolved at the cost of violating a law or policy. In the context of an organization, an employee may appeal to organizational values or hierarchies. For example, an executive could argue that he

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or she has to violate a policy in order to get things done and achieve strategic objectives for the enterprise. Claim blunder quota: It was a necessary shortcut to get things done. The offender argues that what he or she did is acceptable given the situation and given his or her position. The person feels that after having done so much good for so many for so long, others should excuse him or her for more wrongdoings than other people. Others should understand that the alleged crime was an acceptable mistake. This is in line with the metaphor of the ledger, which uses the idea of compensating bad acts by good acts. That is, the individual believes that he or she has previously performed a number of good acts and has accrued a surplus of good will, and, because of this, can afford to commit some bad actions. Executives in corporate environments neutralize their actions through the metaphor of the ledger by rationalizing that their overall past good behavior justifies occasional rule breaking. Claim legal mistake: This should never pop up as illegal in the first place. The offender argues that the law is wrong, and what the person did should indeed not pop up as illegal. One may therefore break the law since the law is unreasonable, unfair, and unjustified. The offender may argue that lawmakers sometimes criminalize behaviors and sometimes decriminalize more or less randomly over time. For example, money involved in bribing people was treated as legal expenses in accounting some decades ago, while corruption today is considered misconduct and therefore criminalized. Claim normality of action: Everyone else does and would do the same. The offender argues that it is so common to commit the offense that one can hardly define it as an offense at all. The offense is not deviant behavior since most people do it or would do it in the same situation. The offender might even suggest that what may constitute deviant behavior is when people in the same situation obey the law. Claim entitlement to action: It is sometimes a required behavior in this position. The offender claims to be within his rights to do what he did, perhaps because of a very stressful situation or because of some misdeed perpetrated by the victim. This is defense of necessity, which is a kind of justification that if the rule breaking seems necessary in the mind of the offender, one should feel no guilt when carrying out the action. Claim solution to dilemma: The benefits of action outweigh costs. The offender argues that a dilemma arose whereby he or she made a reasonable trade-off before committing the act. Trade-off between many interests therefore resulted in the offense. A dilemma represents a state of mind in which it is not obvious to an offender what is right and what is wrong to do. For example, the criminal carries out the offense to prevent what seems to be a more serious offense from happening. Justify necessity of crime: It was necessary to carry out the offense. The offender claims that the offense belongs to a larger picture in a comprehensive context, where the crime is an illegal element among many legal elements to ensure an important result. The offense was a required and necessary means to achieve an important goal. For example, a bribe represents nothing in dollar value

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13

14

15

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compared to the potential income from a large contract abroad. Alternatively, a temporary misrepresentation of accounts could help save the company and thousands of jobs. Claim role in society: It is a natural maneuver among elite members. The offender argues that being a minister in the government or a chief executive officer in a global company is so time-consuming that little time is available for issues that seem trivial. Shortcuts are part of the game. Some shortcuts may be illegal, but they are nevertheless necessary for the elite member to ensure progress. If someone is to blame, then subordinates are supposed to provide advice and control what the elite member is doing. Perceive being victim of incident: Others have ruined my life. The incident leads to police investigation, prosecution, and possible jail sentence. The media is printing pictures of the offender on the front page, and gains from crime disappear as public authorities conduct asset recovery without considering the harm caused to the offender. Previous colleagues and friends have left, and so has the family. The offender perceives being a loser and made a victim of those who reacted to his crime after disclosure. Gather support: Nobody thinks it is wrong. Most colleagues, friends, and others in the upper echelon of society think what the offender did is quite acceptable. The supporters communicate to the public, the media, and others that it is ridiculous for the offender to become subject to police investigation and eventually subject to prosecution and conviction. The supporters argue that it is completely misleading to portray the white-collar offender as a criminal. The supporters may suggest that the offender was unlucky and made an unintentional mistake. They may argue that, in the eyes of the public, the offense can emerge as misconduct, but certainly not crime. The offender potentially made a shortcut for very good reasons, which is tolerable and not objectionable. Given such massive support from those who condemn the criminal justice system, the offender gathers support that causes a fundamental reduction in his or her potentially guilty mind. The guilty mind may further deteriorate as the offender hires top defense attorneys who tell the offender that it is the state or someone else who, without any acceptable or plausible reason, is out there to catch him or her for an act that certainly was no crime. Claim rule complexity: It is impossible to understand what is right and what is wrong. Some laws, rules and regulations are so complex that compliance is random. The regulatory legal environment is supposed to define the boundaries of appropriate organizational conduct. However, legal complexity is often so extreme that even specialist compliance officers struggle to understand what to recommend to business executives in the organization.

Lehman et al. (2020: 1442) define rule complexity in terms of components and connections: First, a rule is more complex to the extent that it comprises more components that together describe the actions and outcomes necessary for compliance. A

68 Theory of Convenience rule with a high number of components contains more detail and requires more actions to constitute compliance. Second, a rule is more complex to the extent that it has more connections to or functional dependencies upon other rules in the same system. A rule with a high number of connections refers to actions or outcomes that may be affected by activities pertaining to another rule or set of rules. Neutralizations are not merely after-the-fact rationalizations where offenders can live with and accept what they have done. Neutralizations imply a deterministic or causal relationship available before the offense takes place. The use of neutralization techniques function as a means of making it possible to commit violations while at the same time reducing a guilt feeling (Cohen, 2001). When potential offenders apply neutralization techniques in advance of potential criminal actions, then their willingness for criminal behaviors might increase. A simple example is speeding on the highway, where the offender can drive too fast because of neutralizations such as ‘everyone else does it’, ‘there is something wrong with the speed limit’, or ‘nobody will get hurt anyway’. Neutralizations ahead of a criminal act protect the offender from harm to his or her self-image.

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5

Privileged Position Status

The first convenience theme in Figure 4.1 in the organizational opportunity dimension of convenience theory is labeled status, which indicates misconduct and crime convenience based on the privileged position status of the chief executive officer. For example, at Siemens in Germany, CEO Heinrich von Pierer met with Russian President Vladimir Putin to discuss business, and he spoke to the Security Council at the United Nations where he reported on his meeting with President Hamid Karzai and on the infrastructure work Siemens was doing in Afghanistan and Iraq. At the same time in 2004, Siemens faced a series of bribery and moneylaundering allegations in more than a dozen countries (Eberl et al., 2015: 1209): Ultimately, in November 2006, German public prosecutors and police simultaneously raided Siemens headquarters in Munich and the homes of leading managers. Investigations by the German state attorney’s office uncovered more than €2.3 billion worth of suspicious payments used to secure foreign contracts, mainly in the telecommunication and IT industries. The investigation revealed that Siemens had been bribing governmental officials to secure contracts and to gain favorable conditions for more than three decades. Most of the managers involved were clearly aware that they were violating the law, but they acted out of a sense of loyalty to and for the benefit of their company. Although CEO Heinrich von Pierer denied any knowledge of the corrupt practices at Siemens, he had to resign from his position in 2007. The Munich district court then imposed a fine of €201 million on Siemens. Siemens pleaded guilty to violating the US Foreign Corrupt Practices Act and accepted a fine of $450 million (Berghoff, 2018; Murphy and Dacin, 2011).

Position Status Characteristics Status is an individual’s social rank within a formal or informal hierarchy, or the person’s relative standing along a valued social dimension. Status is the extent to which an individual is respected and admired by others, and status is the outcome of a subjective assessment process (McClean et al., 2018). High-status individuals DOI: 10.4324/9781003302254-5

76 Privileged Position Status enjoy greater respect and deference from, as well as power and influence over, those who are positioned lower in the social hierarchy (Kakkar et al., 2020: 532): Status is a property that rests in the eyes of others and is conferred to individuals who are deemed to have a higher rank or social standing in a pecking order based on a mutually valued set of social attributes. Higher social status or rank grants its holder a host of tangible benefits in both professional and personal domains. For instance, high-status actors are sought by groups for advice, are paid higher, receive unsolicited help, and are credited disproportionately in joint tasks. In innumerable ways, our social ecosystem consistently rewards those with high status. In particular, individuals with high status based on prestige rather than dominance tend to be excused for whatever wrongdoing they commit. Individuals who attain and maintain high rank by behaving in ways that are assertive, controlling, and intimidating are characterized as dominant. Individuals who attain and maintain high rank by their set of skills, knowledge, expertise, and their willingness to share these with others are characterized as prestigious (Kakkar et al., 2020). High social status in privileged positions is sometimes associated with entrepreneurship, where an entrepreneurial individual can create opportunities for deviant behavior (Ramoglou and Tsang, 2016). The entrepreneurship perspective emphasizes that entrepreneurs discover and create innovative and changing opportunities. However, Ramoglou and Tsang (2016: 416) argue that opportunities are not the result of innovation, discovery or creation: “They are objectively existing propensities to be creatively actualized.” Criminal entrepreneurs thus actualize illegal opportunities in the shadow economy (McElwee and Smith, 2015). Criminal entrepreneurship represents the dark side of entrepreneurialism. To understand entrepreneurial behavior by white-collar criminals, important behavioral areas include “modus essendi”, “modus operandi”, and “modus vivendi”. Modus essendi is a philosophical term relating to modes of being. Modus operandi is a method of operating, which is an accepted criminological concept for classifying generic human actions from their visible and consequential manifestations. Modus vivendi represents the shared symbiotic relationship between different entrepreneurial directions (Smith, 2009). Entrepreneurs are often important economic agents, driving forward employment, opportunities, and economic development. Entrepreneurship is associated with innovation, adaptation, change and dynamism, hard work, willpower, and overcoming challenges and struggles. According to Welter et al. (2017), entrepreneurship is a broadly available social technology for creating organizations that may pursue a myriad of goals. Tonoyan et al. (2010) found that viewing illegal business activities as a widespread business practice provides the rationale for entrepreneurs to justify their own corrupt activities. While it might seem reasonable that individual corporate officers could be found guilty of violating laws without exhibiting any unlawful intent, negligence, or knowledge, as long as they hold a position of responsibility, this is not the case

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in most legislatures. Even if it is obvious that they could prevent the violation or failed to prevent it, they will never become a target for prosecution and possible incarceration. There is little or no support for the responsible corporate officer doctrine (Müller, 2018). Rather, the worst that can happen as a consequence of corporate crime is that the business organization has to pay a fine that in some countries can be a substantial amount. In Europe, researchers have emphasized gender as a determining factor for the status of individuals. For example, Benson and Gottschalk (2015) found very limited support for the emancipation hypothesis as they compared Norway with the United States, where the Norwegian gender gap is much smaller than the US gender gap. Even though gender inequality is much lower in Norway than in the United States, the gender gap in Norwegian white-collar crime appears to be nearly identical to that observed in the United States. The emancipation hypothesis suggests that incidents of women in white-collar crime will increase as access to opportunities increase (Lutz, 2019). The gendered focal concern hypothesis contradicts the emancipation hypothesis as it suggests that women socialize into accepting nurturing role obligations that emphasize the importance of social relationships and communalistic orientation towards others. Through the assimilation of these obligations, women develop identities as caregivers (Steffensmeier et al., 2013). Gender can influence the type of financial crime committed. Women comprised close to half of the bank embezzlement offenders, but only 5 percent of the antitrust, securities, tax, and bribery offenders in the United States, while no convicted female offenders in Norway were involved in corruption (Benson and Gottschalk, 2015). The lack of involvement of women in corruption might be explained by their status.

No Attribution of Blame Some members of the elite are simply too powerful to blame. Pontell et al. (2014) found that the financial crisis obviously had its cause in mismanagement in the financial sector, but all in the financial sector avoided serious blame. Status-related factors such as influential positions, upper-class family ties, and community roles often preclude perceptions of blameworthiness (Slyke and Bales, 2013). Blameworthiness is the extent to which it is clear that an individual engaged in a questionable act (Dewan and Jensen, 2020). Evidence of the perspective of being too powerful to blame is the observation of the absence of prosecution after the disclosure of crime because authorities consider the organization too big to fail, and authorities consider executives too powerful to jail. In their classic article on the absence of failure prosecution after the 2008 financial meltdown, Pontell et al. (2014: 1) suggest that some were too big to fail and too powerful to jail: These companies had balance sheets that were saturated with securities containing toxic subprime mortgages. They collapsed, were bought by

78 Privileged Position Status competitors, or were bailed out by the federal government with huge infusions of taxpayer money. For most onlookers, including criminologists and the public in general, the corporate actions represented intricate and arcane business practices that were difficult to understand fully and to portray as sound bites – and therefore tended to become trivialized in regard to their failure components. One of the companies mentioned in their article is Lehman Brothers, which went bankrupt. A private internal report of 2,208 pages written by fraud examiner Jenner Block (2010: 16) concluded the innocence of the powerful executives who drove the bank into bankruptcy: “The business decisions that brought Lehman to its crisis of confidence may have been in error but were largely within the business judgment rule.” Some years later, Crosina and Pratt (2019) studied organizational mourning among former Lehman Brothers bankers. Pontell et al. (2014: 10) argue that the financial meltdown points to the need to unpack the concept of status when examining white-collar and corporate offenses: The high standing of those involved in the current scandal has acted as a significant shield to accusations of criminal wrongdoing in at least three ways. First, the legal resources that offenders can bring to bear on any case made against them are significant. This would give pause to any prosecutor, regardless of the evidence that exists. Second, their place in the organizations ensures that the many below them will be held more directly responsible for the more readily detected offenses. The downward focus on white-collar and corporate crimes is partly a function of the visibility of the offense and the ease with which it can be officially pursued. Third, the political power of large financial institutions allows for effective lobbying that both distances them from the criminal law and prevents the government from restricting them from receiving taxpayer money when they get into trouble. Pontell et al. (2014) mention criminal wrongdoing, where wrongdoing generally is a behavior that a social-control agent judges to transgress a line separating right from wrong, where such a line can separate legal, ethical, and socially responsible behavior from its antithesis (Schnatterly et al., 2018).

Untouchable Heroic Celebrities CEO celebrity is the extent to which a CEO has attained a high level of public attention combined with positive emotional responses from stakeholders (Hambrick and Wowak, 2021: 44): Some CEOs remain largely anonymous to parties beyond their immediate spheres; others achieve moderate levels of public recognition; and, at the upper end of the spectrum, some CEOs receive such abundant media coverage and acclaim that they become widely known to national public audiences.

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CEO celebrity arises when journalists broadcast the attribution that a firm’s positive performance has been caused by its CEO’s actions. In this definition, celebrity has three core components. First, journalists broadcast such attributions through the print and electronic mass media. Second, the attribution involves the causes of a firm’s actions that lead to its positive performance. Third, firm actions (and, by implication, performance) are attributed to the CEO’s volition. That is, celebrity does not involve attributions to other factors such as luck, environmental conditions, or the actions of other individuals and teams in the organization. Thus, celebrity does not necessarily arise if performance is attributed to a CEO’s actions that are portrayed as lucky or dictated by the CEO’s environment. There is a tendency of journalists to attribute an organization’s actions and outcomes only to the CEO. Journalists tend to celebrate a CEO whose organization takes strategic actions that are distinctive and consistent by attributing such actions and performance to the organization’s CEO rather than to broader situational factors. A CEO who internalizes such celebrity will also tend to believe this overattribution and become overconfident about the efficacy of his or her past actions and future abilities. Hubris – a personality quality of extreme or foolish pride or dangerous overconfidence – arises when CEO overconfidence results in problematic firm decisions, including undue persistence with actions that produce celebrity. The more those others provide an individual with attributional accounts, the more likely it is that the individual will adopt the view expressed by others. The more a CEO interacts with others who also accept his or her celebrity, the more likely he or she will accept the celebrity attribution as true (Hayward et al., 2004). Heroic conduct refers to fulfilling a high purpose or attaining a noble end (Fox et al., 2021). Chief executives as heroic figures have been central to leadership theory for a long time, stimulating modern-day neo-charismatic theories such as transformational theory. A growing concern about dangerous and derailed leadership led to sharp criticism of this heroic picture of leaders. Omnipotent, selfcentered CEOs are prone to destructive leadership behaviors and bad decisionmaking, targeted by criticism from a host of prominent leadership researchers, who equivocally warn that depicting leaders as heroic and treating them as celebrities is stimulating a dangerous illusion. Heroic CEOs with celebrity status are hard to challenge, even when they show misconduct on a slippery slope. People are loyal and look the other way. They find explanations for why it is acceptable for the CEO to do what he or she does. They ignore negative information and absorb positive information about the CEO that confirms their view of a heroic CEO. Boris Benulic was for many years a heroic celebrity in Sweden. He started as a successful journalist. Then he moved into television programs before taking on executive positions in publishing. He was appointed chief executive officer of an energy enterprise in 2001 and developed himself into heroic fame by being visible in the media with strong and sometimes controversial opinions. He was a sociopolitical activist (Hambrick and Wowak, 2021). He received a sentence of three

80 Privileged Position Status and a half years in prison for accounting fraud (Benulic, 2018; Mo, 2018; Södertörn, 2015; Svea, 2017). In his autobiography, Benulic (2018) remains completely unaware of the charges against him. He claims that even his lawyers do not understand at all why the prosecutor has indicted him. Benulic points out that he had no personal financial gain from the alleged wrongdoing. He spent much time delegating tasks to other people in the organization. He argues that it would not have been rational for him to manipulate accounts. He had also made it clear to the board of the company Kraft & Kultur and corporate management that he did not want to be part of the audit work. Benulic uses the last part of his autobiography to explain why it was not he who performed the manipulation. It is thus obvious from reading his autobiography that Benulic takes no responsibility, admits no guilt, and argues that nobody should hold him accountable for any wrongdoing.

CEO Language and Humor Individuals with high social status in privileged positions sometimes use language that people simply do not understand. Executives and others in the elite may use language that followers do not necessarily understand – nevertheless, they trust executive messages (Ferraro et al., 2005). Cryptology is concerned with techniques for secure communication in the presence of third parties called adversaries. Cryptology is about constructing and analyzing protocols that prevent third parties or the public from understanding messages. In an organizational context, executive communication applies a management language that few others understand. According to Ferraro et al. (2005), language affects what people see or do not see, how they see it, and the social categories and descriptors that they use to interpret their reality. Language shapes what people notice and ignore, and what they believe is and is not important. Reality is socially constructed, and language plays an important role in such constructions. Srivastava and Goldberg (2017) argue that language is a window into a culture. Subcultures develop in the organization, where the language is different from other parts of the organization. The language through which people in the elite communicate with colleagues on the job illustrates how people fit into an organization’s culture or subculture. Language use can predict an individual’s influence and adaptation on the job and can reveal distinct linguistic patterns for executives involved in misconduct and crime. Making sense of executive language, attorney language, and other professional languages is difficult for outsiders (Weick, 1995). People tend to trust what they do not understand based on the authority positions occupied by the senders of messages. Sense making links to crime signal detection by the challenge of perceiving and understanding a crime signal, as discussed below. The sense-making perspective consists of both the interpretation of information and generating results from interpretations (Huff and Bodner, 2013). People give meaning to experiences by the sense-making process. Since most people have little or no experience with fraud and corruption, they will not understand crime signals

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related to financial crime. People without experience are not able to make sense of weak crime signals from white-collar offenders. They are unable to frame or categorize through words what the signal is about (Holt and Cornelissen, 2014). Thus, even if a signal of fraud or corruption is present, colleagues and subordinates are unable to make sense of it since they lack experience. Only experience can help to give meaning. Without experience in the organization, a whitecollar offender can feel quite safe, as nobody will be able to make sense of crime signals. Deviant individuals with high social status in privileged positions might not only use language that simply does not make sense to people. White-collar offenders can also use humor to distract attention from their crime. Offender humor distraction, as suggested by Yam et al. (2018), implies that potential white-collar offenders can influence the organizational opportunity structure through aggressive humor. Aggressive humor is a negatively directed style of humor that an individual carries out at the expense and detriment of one’s relationships with others. It can be teasing with a humorous undertone, or it can be victimization of the receiver. It can be the opposite of self-irony, where the offender makes jokes about others and make them look ridiculous. The more aggressive an offender’s style, the more a sense of humor will signal acceptability of norm violations for the offender. Aggressive humor is a form of hostile behavior. Aggressive leader humor expands the organizational opportunity for whitecollar crime, and it influences the willingness of victims of such humor (Yam et al., 2018: 349): The more aggressive a leader’s style, the more a sense of humor will signal acceptability of norm violations, which will be positively associated with deviance. Aggressive humor refers to a specific style of humor aimed at teasing or ridiculing. It may include sarcasm used humorously to convey disapproving information to followers. Aggressive humor may signal to followers that the accepted social norm of being respectful towards others is not important. It signals that violating norms of human decency is acceptable. The leader humor perspective suggests that a leader’s sense of humor is positively associated with followers’ perceived acceptability of norm violations. When leaders display humor and, as a result, violate norms, followers will likely perceive that it is socially acceptable to violate norms in the organization for two reasons (Yam et al., 2018: 352): First, leaders’ formal position makes them strong sources of normative expectations. Leaders, as role models, are more likely to be observed by followers who are scanning the environment for information on how to behave in the work context. In other words, leaders who make light of norm violations in order to produce humor are likely to imply to followers that mild norm violations in the organizations are generally acceptable. Second, when a

82 Privileged Position Status leader acts in a humorous manner, others will likely react with laughter and amusement, an implicit signal of approval. Followers will be likely to interpret this social information as signaling the acceptability of norm violations. When a norm violation is enacted – and interpreted by others – in a playful, humorous way, it also signals to followers that violations need not be taken seriously or scrutinized.

Organized Irresponsibility High social status in privileged positions creates power inequality compared to those without any status in their positions. The perspective of power inequality suggests that, for example, family members in family firms wield significant influence in their firms (Patel and Cooper, 2014). Family members often have legitimate access to firm resources that non-family executives in the firm cannot question. Individuals with high social status in privileged positions can cooperate to create a business climate of “organized irresponsibility” (Berghoff, 2018: 425): The term implies that management had conspired to prevent efficient controls and therefore facilitated and promoted corruption. Leaders reinforce a culture of financial crime by ignoring criminal actions and otherwise facilitate unethical behavior. At the same time, they try to distance themselves from criminal actions (Pontell et al., 2021: 9): High status corporate criminals often go to great lengths to distance themselves from the crimes committed by their subordinates and to hide any incriminating evidence of their role in the decisions that authorized those criminal acts. Dewan and Jensen (2020) studied high social status individuals in times of scandals that can change the role of status from being an asset to being a liability. They defined scandal as the disruptive publicity of misconduct – that is, a situation after detection and disclosure to the public. While the importance of status in convenience theory is related to the prevention of blame before disclosure, Dewan and Jensen’s (2020: 1657) research was concerned with status after disclosure: Because scandal diminishes the effectiveness of factors that make status an asset, status offers less protection during a scandal. At the same time that scandal decreases the protective benefits of status, the factors that make status a liability remain or are augmented. Status can thus be a liability in the context of blaming, shaming, and labeling of misconduct and crime. High status creates high expectations that are seriously violated in a scandal. The disappointment causes an expectation of consequence for the person responsible for the disappointment.

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The status of individuals may vary with a number of factors. In the United States, researchers have emphasized race as a determining factor for the status of individuals. For example, Sohoni and Rorie (2021: 66) found that many middleand upper-class US whites live in environments of relative social isolation: When this social isolation is combined with financial advantage, it serves to block the development of empathy toward outgroups and increases feelings of individual entitlement, which leads to the formation of crime-specific cultural frames that include neutralizations and justifications for elite white-collar crime. We argue that whiteness plays a role that is independent from (but exacerbated by) socioeconomic status and is an important contributor to the generative worlds from which many white-collar criminals emanate. Similarly, Benson et al. (2021: 10) found that status makes whites dominate the arena of white-collar crime, although some changes have occurred: Since the mid-1970s, the percentage of non-white people convicted of whitecollar crimes in the federal judicial system has been growing steadily. In 2015, non-whites accounted for more than half of all convictions for certain whitecollar type crimes, but the increase in non-white participation has not occurred evenly across all race and ethnic groups. Asians and Latinos have increased their participation in white-collar crime more so than Blacks.

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84 Privileged Position Status Hambrick, D.C. and Wowak, A.J. (2021). CEO sociopolitial activism: A stakeholder alignment model, Academy of Management Review, 46 (1), 33–59. Hayward, M.L.A., Rindova, V.P. and Pollock, T.G. (2004). Believing one’s own press: The causes and consequences of CEO celebrity, Strategic Management Journal, 25, 637– 653. Holt, R. and Cornelissen, J. (2014). Sensemaking revisited, Management Learning, 45 (5), 525–539. Huff, M.J. and Bodner, G.E. (2013). When does memory monitoring succeed versus fail? Comparing item-specific and relational encoding in the DRM paradigm, Journal of Experimental Psychology: Learning, Memory, and Cognition, 39 (4), 1246–1256. Jenner Block (2010). United States Bankruptcy Court, Southern District of New York, in regard Lehman Brothers Holdings, law firm Jenner Block, Chicago, IL, USA, 239 pages. Kakkar, H., Sivanathan, N. and Gobel, M.S. (2020). Fall from grace: The role of dominance and prestige in the punishment of high-status actors, Academy of Management Journal, 63 (2), 530–553. Lutz, J.R. (2019). Pink-collar crime, in: Bernat, F.P. and Frailing, K. (eds.) The Encyclopedia of Women and Crime, New York, NY: John Wiley and Sons, pp. 791–796. McClean, E.J., Martin, S.R., Emich, K.J. and Woodruff, T. (2018). The social consequences of voice: An examination of voice type and gender on status and subsequent leader emergence, Academy of Management Journal, 61 (5), 1869–1891. McElwee, G. and Smith, R. (2015). Towards a Nuanced Typology of Illegal Entrepreneurship: A Theoretical and Conceptual Overview, in: McElwee, G. and Smith, R. (eds.) Exploring Criminal and Illegal Enterprise: New Perspectives on Research, Policy & Practice: Contemporary Issues in Entrepreneurship Research Volume 5, Bingley, UK: Emerald Publishing. Mo, M.L. (2018). Nå må Boris Benulic sone i fengsel (Now Boris Benulic must be jailed), online newspaper iTromsø, www.itromso.no, published May 8. Murphy, P.R. and Dacin, M.T (2011). Psychological pathways to fraud: Understanding and preventing fraud in organizations, Journal of Business Ethics, 101, 601–618. Müller, S.M. (2018). Corporate behavior and ecological disaster: Dow Chemical and the Great Lakes mercury crisis, 1970–1972, Business History, 60 (3), 399–422. Patel, P.C. and Cooper, D. (2014). Structural power equality between family and nonfamily TMT members and the performance of family firms, Academy of Management Journal, 57 (6), 1624–1649. Pontell, H.N., Black, W.K. and Geis, G. (2014). Too big to fail, too powerful to jail? On the absence of criminal prosecutions after the 2008 financial meltdown, Crime, Law and Social Change, 61 (1), 1–13. Pontell, H.N., Tillman, R. and Ghazi-Tehrani, A.K. (2021). In-your-face Watergate: Neutralizing government lawbreaking and the war against white-collar crime, Crime, Law and Social Change, published online. doi:doi:10.1007/s10611-021-09954-1. Ramoglou, S. and Tsang, E.W.K. (2016). A realist perspective of entrepreneurship: Opportunities as propensities, Academy of Management Review, 41, 410–434. Schnatterly, K., Gangloff, K.A. and Tuschke, A. (2018). CEO wrongdoing: A review of pressure, opportunity, and rationalization, Journal of Management, 44 (6), 2405–2432. Slyke, S.R.V. and Bales, W.D. (2013). Gender dynamics in the sentencing of white-collar offenders, Criminal Justice Studies, 26 (2), 168–196. Smith, G. (2009). Citizen oversight of independent police services: Bifurcated accountability, regulation creep, and lessons learning, Regulation & Governance, 3, 421–441.

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Sohoni, T. and Rorie, M. (2021). The whiteness of white-collar crime in the United States: Examining the role of race in a culture of elite white-collar offending, Theoretical Criminology, 25 (1), 66–87. Srivastava, S.B. and Goldberg, A. (2017). Language as a window into culture, California Management Review, 60 (1), 56–69. Steffensmeier, D., Schwartz, J., and Roche, M. (2013). Gender and twenty-first-century corporate crime: Female involvement and the gender gap in Enron-era corporate frauds, American Sociological Review, 78 (3), 448–476. Svea (2017). Case B 5582-12, Svea hovrätt (Svea court of appeals), Sweden, November 29. Södertörn (2015). Case B 5582-12, Södertörns tingsrätt (Södertörn district court), Sweden, July 8. Tonoyan, V., Strohmeyer, R., Habib, M. and Perlitz, M. (2010). Corruption and entrepreneurship: How formal and informal institutions shape small firm behavior in transition and mature market economies, Entrepreneurship: Theory & Practice, 34 (5), 803– 831. Weick, K.E. (1995). What theory is not, theorizing is, Administrative Science Quarterly, 40, 385–390. Welter, F., Baker, T., Audretsch, D.B. and Gartner, W.B. (2017). Everyday entrepreneurship: A call for entrepreneurship research to embrace entrepreneurial diversity, Entrepreneurship: Theory and Practice, 41 (3), 323–347. Yam, K.C., Christian, M.S., Wei, W., Liao, Z. and Nai, J. (2018). The mixed blessing of leader sense of humor: Examining costs and benefits, Academy of Management Journal, 61 (1), 348–369.

6

Legitimate Resource Access

The second convenience theme in Figure 4.1 in the organizational opportunity dimension of convenience theory is labeled access, which indicates misconduct and crime convenience based on privileged access to resources for the chief executive officer. For example, at Alcantor in Germany, CEO Thomas Middelhoff abused resources both to benefit the organization and to benefit himself. Middelhoff was a successful and famous German executive who went to jail for three years after he was convicted of corporate fraud. Based on his autobiography and other archival sources, the case illustrates his motive to achieve admiration in society based on his self-proclaimed narcissism (Middelhoff, 2017; Storbeck, 2018; Weidermann, 2017). The traditional motive of greed is visible in the case (Haynes et al., 2015), as the offender wanted to climb in the hierarchy of needs. Middelhoff had a wish to be in the limelight, and success contributes to limelight that is more personal. He was able to climb in Maslow’s (1943) hierarchy of needs by showing off his elite position in society. Middelhoff had indeed very convenient access to resources to commit financial crime in his privileged position based on his entrepreneurship that created power inequality compared to others in the organization. Giurge et al. (2019) found that powerful individuals in privileged positions tend to become more self-serving. As is typical for white-collar offenders, Middelhoff had legitimate access to resources to commit and conceal crime (Adler and Kwon, 2002; Benson and Simpson, 2018; Williams et al., 2019). Thomas Middelhoff was convinced he had done nothing wrong. He started his autobiography by writing about the morning when he was to testify in the court of appeals, when family and friends had been firmly convinced for days of a positive verdict, including himself (Middelhoff, 2017: 11): Familie, Freunde und Weggefährte sind seit Tagen fest von einem positiven Urteilsspruch überzeugt. Auch ich glaube das. [Family, friends, and companions are for days completely convinced of a positive verdict. I believe that too.] He was so convinced of acquittal, that he had already invited friends and family to a celebration the same evening in his house (Middelhoff, 2017: 12): DOI: 10.4324/9781003302254-6

Legitimate Resource Access 87 Dann soll der Freispruch gefeiert werden, so haben wir es geplant. [Then shall the acquittal be celebrated, so we have it planned.] Middelhoff (2017: 22) was convinced of his innocence based on the application of neutralization techniques (Siponen and Vance, 2010; Sykes and Matza, 1957), and thus he felt wrongly convicted: Ich fühle mich unschuldig und zu Unrecht verurteilt. [I feel not guilty and wrongly convicted.] In particular, Middelhoff applied the technique of condemning those who criticize: Outsiders do not understand relevant executive behavior. The offender tries to accuse his or her critics of questionable motives for criticizing him. According to this technique of condemning the condemners, one neutralizes one’s own actions by blaming those who criticize, as well as the judges in court (Cohen, 2001; Jordanoska, 2018; Kaptein and Helvoort, 2019; Schoultz and Flyghed, 2019, 2020a, 2020b, 2021a, 2021b; Siponen and Vance, 2010; Sykes and Matza, 1957). The offender deflects moral condemnation onto those ridiculing the misbehavior by pointing out that they engage in similar unacceptable behavior. In addition, the offender condemns procedures of the criminal justice system, especially police investigation with interrogation, as well as media coverage of the case.

Resource Characteristics A white-collar offender typically has legitimate access to resources to commit and conceal crime (Williams et al., 2019). A resource is an enabler applied and used to satisfy human and organizational needs. A resource has utility and limited availability. A white-collar offender usually has access to resources that are valuable (application of the resource provides desired outcome), unique (very few have access to the resource), not imitable (resource cannot be copied), not transferrable (resource cannot be released from context), combinable with other resources (results in better outcome), exploitable (possible to apply in criminal activities), and not substitutable (cannot be replaced by a different resource). According to Petrocelli et al. (2003), access to resources equates access to power. Others are losers in the competition for resources (Wheelock et al., 2011). In the conflict perspective suggested by Petrocelli et al. (2003), the upper class in society exercises its power and controls the resources. Opportunity is dependent on social capital available to the criminal. The structure and quality of social ties in hierarchical and transactional relationships shape opportunity structures. Social capital is the sum of actual or potential resources accruing to the criminal by virtue of his or her position in a hierarchy and in a network. Social capital accumulated by the individual in terms of actual and potential resources, which are accessible because of profession and position, creates a larger space for individual behavior and actions that others can hardly observe. Many initiatives by trusted persons in the elite are unknown and unfamiliar to

88 Legitimate Resource Access others in the organization. Therefore, white-collar criminals do not expect consequences for themselves. Berghoff and Spiekermann (2018: 291) argue that all economic transactions depend on a certain degree of trust, without which transaction costs would simply be too high for economic activity: White-collar criminals abuse the good faith of various stakeholders, from customers to the general public, from shareholders to the authorities. Therefore, white-collar crime often coincides with the breach of trust. Offenders take advantage of their positions of power with almost unlimited authority in the opportunity structure (Kempa, 2010), because they have legitimate and often privileged access to physical and virtual locations in which crime is committed, are totally in charge of resource allocations and transactions, and are successful in concealment based on key resources used to hide their crime. Offenders have an economic motivation and opportunity (Huisman and Erp, 2013), linked to an organizational platform and availability, and in a setting of people who do not know, do not care, or do not reveal the individual(s) with behavioral traits who commit crime. Opportunity includes people who are loyal to the criminal either as a follower or as a silent partner, for example, when the follower perceives ambitious goals as invariable.

Resource-Based Perspective The resource-based perspective postulates that differences in individuals’ opportunities find explanation in the extent of resource access and the ability to combine and exploit those resources. Executives and other members of the elite are potential offenders that are able to commit financial crime to the extent that they have convenient access to resources suitable for illegal actions. Access to resources in the organizational dimension makes it more relevant and attractive to explore possibilities and avoid threats using financial crime. The willingness to exploit a resource for fraud and corruption increases when a potential offender has a perception of relative convenience. Criminal acts disappear from easy detection in a multitude of legal transactions in different contexts and different locations performed by different people. The organizational affiliation makes crime look like ordinary business. Offenders conceal economic crime among apparently legal activity. Offenders leverage resources that make it convenient to conceal crime among regular business transactions. In particular, businesses that practice secrecy rather than transparency enable convenient concealment of financial crime (Transparency, 2018). Chasing profits leaves people more creative in finding ways to make more legal as well as illegal profits for themselves and the organization, and people become more creative in concealing crime in various ways (Füss and Hecker, 2008). Offenders carry out crime in such a way that the risk of detection is minimal and even microscopic (Pratt and Cullen, 2005).

Legitimate Resource Access 89 As suggested by Berghoff and Spiekermann (2018: 290), sophisticated concealment is an important factor in white-collar crime: The privileged position of white-collar criminals is the result of several factors. Their offences are especially difficult to prosecute because the perpetrators use sophisticated means to conceal them. They can also often afford the best lawyers and have the political clout to influence the legislative process to their advantage and, if need be, to bribe prosecutors and judges. Additionally, the class bias of the courts works to their benefit. The law is often seen as not binding, at least not for and by economic elites. White-collar offenders have legitimate access to premises (Benson and Simpson, 2018; Williams et al., 2019), and they have specialized access to routine activities (Cohen and Felson, 1979). The routine activity perspective suggests three conditions for crime to occur: a motivated offender, an opportunity in terms of a suitable target, and the absence of a capable or moral guardian. The existence or absence of a likely guardian represents an inhibitor or facilitator for crime. The premise of the routine activity perspective 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 are financial sources that offenders consider particularly attractive. Lack of guardians is not only lack of protective rules and regulations, audits, and controls, but also lack of mental models in the minds of potential offenders that reduce self-control against attraction to criminal acts. Reyns (2013) expanded the routine activity perspective into online routines where insider business cybercrime occurs without direct manual contact.

Legitimate Access Corruption is a typical crime category among white-collar offenses. Lange (2008) defines organizational corruption as the pursuit of individual interests by one or more organizational actors through the intentional misdirection of organizational resources or perversion of organizational routines. Pinto et al. (2008) makes a distinction between corrupt organizations and organizations of corrupt individuals. A corrupt organization is usually a top-down phenomenon in which a group of organizational members – typically, the dominant coalition, organizational elites, or top management team – undertakes corrupt actions. An organization of corrupt individuals is an emergent, bottom-up phenomenon in which informal processes facilitate personally corrupt behaviors that cross a critical threshold such that the organization deserves the characteristic of being corrupt. In the rare case of detection of possible crime, the potential offender has access not only to better defense as a strategic resource, but also often access to an alternative avenue of private investigation. When suspicion of misconduct and crime emerges, the organization may hire a fraud examiner to conduct a private investigation into the matter. The enterprise takes control of suspicions by

90 Legitimate Resource Access implementing an internal investigation (Friedrich, 2021). An external law firm or auditing firm is engaged to reconstruct past events and sequence of events. Typically, the resulting investigation report points to misconduct, while at the same time concluding that there have been no criminal offenses. The police will monitor the internal investigation and await its conclusion. When the conclusion states that there may be misconduct, but no crime, then the police and prosecution tend to settle accept the outcome of the private investigation without further inquiry (Brooks and Button, 2011; Button and Gee, 2013; Button et al., 2007a, 2007b; King, 2020a, 2020b; Schneider, 2006). Legitimate access to crime resources can be illustrated by the case of a chairman of the board who published his autobiography (Olav, 2014, 2015). The chairman used a tax haven where he had an account and he ran business through another company there (Bjørklund, 2018; Oslo tingrett, 2015). A tax haven is a country or place with very low or no rates of taxation for foreign investors, where foreigners enjoy complete secrecy about their investments. Money laundering of proceeds from criminal activity is an attractive opportunity in tax havens. On the legitimate side, the use of tax havens enables transfer-pricing strategies to lower overall tax burdens for multinational corporations. Subsidiaries located in tax havens serve multinationals to avoid taxes by shifting income from high-tax countries to low-tax countries. Firms also use tax havens in strategies that involve inter-company debt or leasing arrangements to shift income across jurisdictions. Tax authorities in various countries attempt to challenge this kind of tax evasion (Dyreng et al., 2019; Guenther et al., 2019).

Bibliography Adler, P.S. and Kwon, S.W. (2002). Social capital: Prospects for a new concept, Academy of Management Review, 27 (1), 17–40. Benson, M.L. and Simpson, S.S. (2018). White-Collar Crime: An Opportunity Perspective, 3rd Edition, New York, NY: Routledge. Berghoff, H. and Spiekermann, U. (2018). Shady business: On the history of white-collar crime, Business History, 60 (3), 289–304. Bjørklund, I. (2018). Må betale over 137 mill i erstatning (Must pay over 137 million in compensation), daily Norwegian business newspaper Dagens Næringsliv, www.dn.no, published January 19. Brooks, G. and Button, M. (2011). The police and fraud investigation and the case for a nationalized solution in the United Kingdom, The Police Journal 84, 305–319. Button, M. and Gee, J. (2013). Countering Fraud for Competitive Advantage – The Professional Approach to Reducing the Last Great Hidden Cost, Chichester, UK: John Wiley & Sons. Button, M., Frimpong, K., Smith, G. and Johnston, L. (2007a). Professionalizing counter fraud specialists in the UK: Assessing progress and recommendations for reform, Crime Prevention and Community Safety 9, 92–101. Button, M., Johnston, L., Frimpong, K. and Smith, G. (2007b). New directions in policing fraud: The emergence of the counter fraud specialists in the United Kingdom, International Journal of the Sociology of Law, 35, 192–208.

Legitimate Resource Access 91 Cohen, S. (2001). States of Denial: Knowing about Atrocities and Suffering, Cambridge, UK: Polity Press. Cohen, L.E. and Felson, M. (1979). Social change and crime rate trends: A routine activity approach, American Sociological Review, 44, 588–608. Dyreng, S.D., Hanlon, M. and Maydew, E.L. (2019). When does tax avoidance result in tax uncertainty? The Accounting Review, 94 (2): 179–203. Friedrich, C. (2021). Corporate Misconduct and the Impact of Market Forces, Regulatory Change, and Auditor-Provided Services, Doctoral dissertation, Technical University of Darmstadt, Germany. Füss, R. and Hecker, A. (2008). Profiling white-collar crime. Evidence from Germanspeaking countries, Corporate Ownership & Control, 5 (4), 149–161. Giurge, L.M., Dijke, M., Zheng, M.X. and Cremer, D. (2019). Does power corrupt the mind? The influence of power on moral reasoning, The Leadership Quarterly, published online, doi:doi:10.1016/j.leaqua.2019.03.003. Guenther, D.A., Wilson, R.J. and Wu, K. (2019). Tax uncertainty and incremental tax avoidance, The Accounting Review, 94 (2): 229–247. Haynes, K.T., Josefy, M. and Hitt, M.A. (2015). Tipping point: Managers’ self-interest, greed, and altruism, Journal of Leadership & Organizational Studies, 22, 265–279. Huisman, W. and Erp, J. (2013). Opportunities for environmental crime, British Journal of Criminology, 53, 1178–1200. Jordanoska, A. (2018). The social ecology of white-collar crime: Applying situational action theory to white-collar offending, Deviant Behavior, 39 (11), 1427–1449. Jordanoska, A. and Schoultz, I. (2020). The “discovery” of white-collar crime: The legacy of Edwin Sutherland, in: Rorie, M. (ed.), The Handbook of White-Collar Crime, Hoboken, NJ: John Wiley & Sons, pp. 3–15. Kaptein, M. and Helvoort, M. (2019). A model of neutralization techniques, Deviant Behavior, 40 (10), 1260–1285. Kempa, M. (2010). Combating white-collar crime in Canada: Serving victim needs and market integrity, Journal of Financial Crime, 17 (2), 251–264. King, M. (2020a). What makes a successful corporate investigator – An exploration of private investigators attributes, Journal of Financial Crime, published online, doi: doi:10.1108/JFC-02-2020-0019. King, M. (2020b). Out of obscurity: The contemporary private investigator in Australia, International Journal of Police Science and Management, published online, doi: doi:10.1177/1461355720931887. Lange, D. (2008). A multidimensional conceptualization of organizational corruption control, Academy of Management Journal, 33 (3), 710–729. Lange, D., Boivie, S. and Westphal, J.D. (2015). Predicting organizational identification at the CEO level, Strategic Management Journal, 36, 1224–1244. Maslow, A.H. (1943). A theory of human motivation, Psychological Review, 50 (4), 370–396. Middelhoff, T. (2017). Der Sturz: Die Autobiografie von Thomas Middelhoff (The Fall: The autobiography of Thomas Middelhoff), Stuttgart, Germany: LangenMuller in der F.A. Herbig Verlagsbuchhandlung. Olav, H.E. (2014). Det store selvbedraget: Hvordan statsmakt ødelegger menneskeverd og velferd (The grand self-deception: How state power harms human dignity and welfare), Oslo, Norway: Kolofon publishing. Olav, H.E. (2015). The Grand Self-Deception: A Libertarian Manifesto Against the Deep State – The Failed Welfare-Taxation Model of Norway, Kindle Edition, printed in Great Britain by Amazon.

92 Legitimate Resource Access Oslo tingrett (2015). Verdict 14-067448MED-OTIR/06, judge Bjørn Feyling, Oslo tingrett (Oslo district court), January 12. Petrocelli, M., Piquero, A.R. and Smith, M.R. (2003). Conflict theory and racial profiling: An empirical analysis of police traffic stop data, Journal of Criminal Justice, 31 (1), 1–11. Pinto, J., Leana, C.R. and Pil, F.K. (2008). Corrupt organizations or organizations of corrupt individuals? Two types of organization-level corruption, Academy of Management Review, 33 (3), 685–709. Pratt, T.C. and Cullen, F.T. (2005). Assessing macro-level predictors and theories of crime: A meta-analysis, Crime and Justice, 32, 373–450. Reyns, B.W. (2013). Online routines and identity theft victimization: Further expanding routine activity theory beyond direct-contact offenses, Journal of Research in Crime and Delinquency, 50, 216–238. Schneider, S. (2006). Privatizing economic crime enforcement: Exploring the role of private sector investigative agencies in combating money laundering, Policing & Society, 16 (3), 285–312. Schoultz, I. and Flyghed, J. (2019). From “we didn’t do it” to “we’ve learned our lesson”: Development of a typology of neutralizations of corporate crime, Critical Criminology, published online, doi:doi:10.1007/s10612-10019-09483-09483. Schoultz, I. and Flyghed, J. (2020a). From “we didn’t do it” to “we’ve learned our lesson”: Development of a typology of neutralizations of corporate crime, Critical Criminology, 28, 739–757. Schoultz, I. and Flyghed, J. (2020b). Denials and confessions: An analysis of the temporalization of neutralizations of corporate crime, International Journal of Law, Crime and Justice, 62, September, Article 100389. Schoultz, I. and Flyghed, J. (2021a). “We have been thrown under the bus”: Corporate versus individual defense mechanisms against transnational corporate bribery charges, Journal of White Collar and Corporate Crime, 2 (1), 24–35. Schoultz, I. and Flyghed, J. (2021b). Performing unbelonging in court: Observations from a transnational corporate bribery trial – A dramaturgical approach, Crime, Law and Social Change, published online, doi:doi:10.1007/s10611-021-09990-x. Siponen, M. and Vance, A. (2010). Neutralization: New insights into the problem of employee information security policy violations, MIS Quarterly, 34 (3), 487–502. Storbeck, O. (2018). Lunch with the FT Thomas Middelhoff: “I thought certain rules did not apply to me”, Financial Times, May 13, 12–13. Sykes, G. and Matza, D. (1957). Techniques of neutralization: A theory of delinquency, American Sociological Review, 22 (6), 664–670. Transparency (2018). Corruption perceptions index 2018, Transparency International, www.transparency.org/cpi2018. Weidermann, V. (2017). Wie Thomas Middelhoff sein Leben umdichtet (How Thomas Middelhoff rewrote his life), German magazine Der Spiegel, Ausgabe 37, available at www.spiegel.de. Wheelock, D., Semukhina, O. and Demidov, N.N. (2011). Perceived group threat and punitive attitudes in Russia and the United States, British Journal of Criminology, 51, 937–959. Williams, M.L., Levi, M., Burnap, P. and Gundur, R.V. (2019). Under the corporate radar: Examining insider business cybercrime victimization through an application of routine activities theory, Deviant Behavior, 40 (9), 1119–1131.

7

Institutional Deterioration

The third convenience theme in Figure 4.1 in the organizational opportunity dimension of convenience theory is labeled decay, which indicates misconduct and crime convenience based on institutional deterioration to conceal wrongdoing by the chief executive officer. For example, at Wirecard in Germany, CEO Markus Braun orchestrated institutional deterioration at the financial enterprise by distributing funds to distant locations and by claiming that hidden funds had values that were not real (Chazan, 2021; Kagge, 2021; KPMG, 2020a, 2020b; Storbeck, 2021a, 2021b; Storbeck and Morris, 2021). Wirecard’s chief executive, Markus Braun, was ambitious both on behalf of the company and on behalf of himself (Solgård, 2021). Wirecard auditor Ernst & Young was in trouble for failing to uncover the fraud (Bugge, 2020). Braun claimed that €1.9 billion in cash was transferred from Singapore to the Philippines and into a bank account in the name of Manila-based lawyer Mark Tolentino. It was discovered that two months after the money was supposedly paid into Tolentino’s account, Wirecard still did not have a contractual relationship with the new trustee, nor had it conducted background checks on him (Storbeck, 2020). CEO Braun at Wirecard resigned on June 19 and was arrested on June 22, 2020. Jan Marsalek, Wirecard’s second-in-command who oversaw operations in Asia, escaped arrest and was on the run in August 2020. A key Wirecard business partner died. Thomas Eichelmann was the finance director at Wirecard. Susanne Steidl was the chief product officer. Consultants from McKinsey & Co. had helped Wirecard prepare a plan of Project Panther to take over Deutsche Bank. To do so, the value of Wirecard needed to exceed the value of Deutsche Bank. The scheme was detected by investigative journalists at the Financial Times (Storbeck, 2020).

Organizational Moral Decline An institution is a system of interrelated formal and informal elements – rules, guidelines, norms, traditions, beliefs – governing relationships between institutional members within which members pursue their mutual interests (Gyõry, 2020). Institutional deterioration can occur conveniently as a result of external legitimacy where deviance is the norm (Rodriguez et al., 2005). Executive deviance enacted at institutional deterioration is dependent on a number of DOI: 10.4324/9781003302254-7

94 Institutional Deterioration factors. For example, in the case of government corruption for multinational enterprises in host countries, both pervasiveness and arbitrariness are important factors. Pervasiveness is the average firm’s likelihood of encountering bribery, while arbitrariness is the inherent degree of ambiguity associated with corrupt transactions in a given nation or state (Rodriguez et al., 2005). Pinto et al. (2008: 686) define the beneficiary of corruption as the actor deriving direct and primary benefit from the action: “For example, even if individuals can benefit financially from corruption on behalf of the organization (e.g., through bonuses or high prices for their stocks), the organization is still the primary and direct financial beneficiary.” It becomes more convenient for white-collar offenders to commit financial crime in organizations characterized by moral deterioration and collapse. The institutional perspective of moral deterioration suggests that opportunities improve for white-collar criminals. For example, Bradshaw (2015) found criminogenic industry structures in the offshore oil industry. The institutional perspective contributes an understanding of organizational behavior that experiences influence from individuals, groups, and other organizations, as well as the larger society of which they are a part. The perspective emphasizes how organizational structure and organizational culture derive from norms, attitudes, and rules, which are common to most organizations in society. While organizational structure is characterized by the design of positions in terms of job specialization, behavioral formalization, unit grouping, and unit size (Donk and Molloy, 2008), organizational culture is characterized by accepted practices, rules, and principles of conduct that are applied to a variety of situations and which define appropriate attitudes and behaviors for organizational members, as well as generalized rationales and beliefs (Barton, 2004). Integrity is the quality of acting in accordance with the moral values, norms, and rules that are considered valid and relevant within the context in which the actor operates (Loyens et al., 2021), as well as the adherence to accepted ethical, regulatory, and normative principles (Paruchuri et al., 2021). Berghoff and Spiekermann (2018: 291) found that white-collar crime is often systemic and part of a culture, either a corporate culture inside the firm or a culture in the firm’s environment: In the first case, the corporation’s control mechanisms are typically weak, intentionally or unintentionally, which is an obstacle to the prevention and the investigation of economic crimes. Individual responsibility is therefore hard to ascertain. Defendants routinely deny responsibility and point to their superiors who made them commit crimes, or to their inferiors who engaged in shady practices without their knowledge or authorization. The institutional perspective applied to white-collar crime means that white-collar offenders find opportunity for and acceptance of illegal behaviors because of moral collapse generally in their organizations. The institutional perspective argues that business enterprises are much more than simple tools and instruments to achieve

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financial goals and ambitions. The perspective says that organizations are adaptable systems that recognize and learn from the environment by mirroring values in society. This reasoning is relevant to explaining why business organizations tend to be similar in the same industry and the same nation and region (Kostova et al., 2008). Moral collapse happens when organizations are unable to see that bright line between right and wrong. Seven signs of ethical collapse can become visible: (i) pressure to maintain those numbers; (ii) fear and silence antidotes to openness; (iii) inexperienced and a bigger-than-life CEO; (iv) a weak board; (v) conflicts; (vi) innovation like no other; and (vii) goodness in some areas atones for evil in others. Shadnam and Lawrence (2011: 379) apply the institutional perspective to explain moral decline and potential crime in organizations: Our theory of moral collapse has two main elements. First, we argue that morality in organizations is embedded in nested systems of individuals, organizations and moral communities in which ideology and regulation flow “down” from moral communities through organizations to individuals, and moral ideas and influence flow “upward” from individuals through organizations to moral communities. Second, we argue that moral collapse is associated with breakdowns in these flows and explore conditions under which such breakdowns are likely to occur. Shadnam and Lawrence (2011: 393) formulated several research hypotheses, which imply that the likelihood of moral decline will vary depending on a number of circumstances: 



 

Moral collapse is more likely to happen in organizations that operate in moral communities in which flows of corporate ideology and culture disappear. Either it can happen through a lack of commitment to formal communication mechanisms by community leaders, or it can happen through the disruption of informal communication networks by high rates of membership turnover. Moral collapse is more likely to happen in organizations in which structures and practices diminish the organization’s capacity to absorb and incorporate morally charged institutions from the organization’s moral community, because the organization monopolizes the attention of its members and/or because the organization delegitimizes the morally charged institutions rooted in the moral community. Moral collapse is more likely to happen in organizations in which accusing individuals of misconduct creates significant social and economic costs for the organization or the moral community within which it operates. Moral collapse is more likely to occur in organizations to the degree that employment conditions undermine disclosure and/or work arrangements diminish the effectiveness of surveillance.

The institutional perspective is mainly a sociological and public policy perspective on organizational studies. The perspective sheds light on normative structures and

96 Institutional Deterioration activities. The institutional perspective in public policy emphasizes the formal and legal aspects of government structures. Signs from organizations represent observations as indications of values in organizational members. When activities occur repetitively in the same way and within the same structure, then those activities become part of the institution itself, as the sum of activities based on shared perceptions of reality are an institution. The institutional perspective considers the processes by which structures (including schemes), rules, norms, and routines become established as authoritative guidelines for social behavior. Triggers of institutional adaptation include political, cultural, and social influences. Behavioral patterns supported by norms, values, and expectations lead to cultural influence. A desire to equal others implies social influence. Normative institutional pressure is concerned with conformity, where deviance is disliked, disapproved of, or even dismissed.

Dysfunctional Mirror Networks The institutional perspective is in line with the dysfunctional network perspective, in that organizations tend to mirror the basic elements of their environments. The largest business corporations can more easily absorb the negative impact of legal sanctions that certain governmental or regulatory agencies might impose on them. The largest business enterprises might have better lawyers and other resources, so that they are able to contend with legal pursuits in more effective and efficient ways. Microsoft versus the United States and Microsoft versus the European Union are typical examples. Therefore, laws and regulations tend to have less deterrent effect in the case of large business organizations (Dion, 2008). Institutional deterioration often occurs at the same time as social disorganization, which further improves the opportunity structure for white-collar crime. The disorganization perspective argues that structural conditions lead to higher levels of social disorganization – especially of weak social controls – in organizations and between organizations, which in turn results in higher rates of crime (Pratt and Cullen, 2005). Of course, rates of financial crime vary across time and space in the private and public sectors with different motivational bases (Kjeldsen and Jacobsen, 2013; Miceli and Near, 2013; Perry et al., 2010; Wright, 2007). Social disorganization increases offenders’ opportunities to commit financial crime without any likelihood of detection. Offenders have unrestricted and legitimate access to the location in which the crime is committed without any kinds of controls (Williams et al., 2019). Offenders’ actions have a superficial appearance of legitimacy also internally, since both legal and illegal actions in the organization occur in a manner characterized by disorganization (Benson and Simpson, 2018). The social disorganization perspective argues that crime is a function of people dynamics in the organization and between organizations, and not necessarily a function of each individual within such organizations. Business enterprises experiencing rapid changes in their social and economic structures that are in a zone of transition will experience higher crime rates. Management mobility is another structural factor or antecedent that can produce organizations that develop into

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socially disorganized entities. Conventional mechanisms of social control are weak and unable to regulate the behavior within organizations (Pratt and Cullen, 2005). Especially in knowledge organizations where the hierarchical structure tends to be weak, social controls among colleagues are of importance to prevent financial crime. An unstable and disorganized unit will suffer from lack of knowledge exchange and collaboration to prevent and detect white-collar crime (Swart and Kinnie, 2003). Structural antecedents include not only management instability and rapid organizational changes, but also external factors such as family disruptions and no intelligence about life outside work. Social disorganization may well occur at the very top of organizations, where chief executives have created large business spaces for themselves without access for others. The board of directors is incapable of controlling chief executive activities (Ghannam et al., 2019). Rivalry among members of the top management group, sometimes incorrectly labeled a team, can create silos of allies and enemies in the organization that barely communicate honestly with each other. There are no ties allowing others to act collectively to fight problems (Pratt and Cullen, 2005). Corporate disorganization weakens the ability of social bonds to circumscribe delinquent behavior. In enterprises characterized by instability and heterogeneity, there is reduced likelihood of effective socialization and supervision. The impact of social bonds varies by type of organization, and disorganized units negatively affect the ability of social bonds to reduce delinquent behavior (Hoffmann, 2002; Onna and Denkers, 2019).

Concerted Organizational Ignorance Concerted ignorance can occur in deteriorated organizations, where the normalization of deviant thinking and behavior in organizations develops. Employees slowly adapt to organizations’ deviant norms and values that become dominant due to the higher authority of deviating individuals (Katz, 1979). For example, Shichor and Heeren (2021: 99) described concerted ignorance at Wells Fargo: Management expectations of making profits through lower level employees, without being interested in how the results are achieved, can be characterized as “concerted ignorance” which is a general way of covering up when open discussion of certain practices or policies would threaten the solidarity and cohesion in an organization. Shichor and Heeren (2021) found that concerted ignorance was created by an organizational emphasis on decentralization. Concerted ignorance was promoted by the common interest of limiting the knowledge each member of the organization obtains about other members of the organization. The essence of a deteriorated institution is that its norms, behaviors, and ways of thinking are rooted in its deviant culture. For example, Campbell and Göritz (2014) identified corrupt organizations as enterprises that systematically receive

98 Institutional Deterioration bribes or provide bribes that lead to advantages in competitions. Executives who facilitate corruption either on the bribed or bribing side harm other companies for the advantage of their own organizations. In corrupt organizations, executives perceive corrupt behavior as appropriate. Disorganized institutional deterioration can cause potential whistleblowers to become reluctant to blow the whistle on observed wrongdoings. Potential whistleblowers can fear organizational death and job loss, in addition to reprisals and retaliation. They may feel strongly for their organization, and they may be dependent on the income from their jobs. As argued by Crosina and Pratt (2019), organizations can foster deep bonds among their members, whether in the form of person–organization fit, organizational commitment, organizational identification, or some other type of attachment. A potential scandal from exposure of white-collar crime suspicion can threaten members’ bonds to the organization. Organizational failure and closure can lead to organizational mourning, which Crosina and Pratt (2019: 67) define as “the thoughts, feelings, and actions that individual members undergo when processing and responding to the loss of their organization”. The threat of organizational collapse is a stressor that can prevent attention to possible crime, which can create a scandal. Job loss because of a corporate scandal is detrimental to individuals’ needs, desires, and goals. Job loss in conjunction with organizational death results in a large number of people entering the stage of organizational mourning that they would all like to avoid. An element of disorganized institutional deterioration is the opportunity for fraudulent misreporting in accounting (Qiu and Slezak, 2019). Lack of transparency makes concealment in accounting convenient (Goncharov and Peter, 2019). Elite members can withhold bad news by accounting misrepresentation (Bao et al., 2019). Balakrishnan et al. (2019) found that reduced corporate transparency is associated with increased corporate tax aggressiveness. Disorganized institutional deterioration in combination with lack of corporate social responsibility causes both internal and external collapse. Executives in the organization do not care about the community, the environment, or product safety (Davidson et al., 2019). Lack of government and governance is another enabler of disorganized institutional deterioration. The last decades have seen a shift of regulatory authority of business conduct from governments to the private sector. Self-regulation and selfpolicing have become the norm rather than the exception when it comes to whitecollar crime suspicions (Kourula et al., 2019). Kourula et al. (2019: 1103) define government as those public actors who have exclusive authority over legitimate force in a specific territory: In our contemporary world, governments defined in this way are generally coextensive with nation-states. By virtue of this unique mode of authority, the “sine qua non” of state power, governments have the capacity, within their jurisdictions, to impose legally binding constraints and sanctions over nongovernmental actors, whether in politics, society, or markets.

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When there is suspicion of corporate white-collar crime, the government branch typically involved is the national criminal justice system. The police have the task of investigating suspicions by reconstructing past events and sequences of events. If the police find sufficient evidence of law violation, then the case moves to the prosecution. The defendant faces the prosecutor in court, where a jury or a judge decides whether the suspected criminal is guilty of law violation. Kourula et al. (2019: 1104) define governance as those private actors who direct behaviors in business conduct by rulemaking, enforcement, and sanctioning: By “governance” we refer not to corporate governance, but to the wider concept of societal governance, that of the collective means to give “direction to society” which we take to include direction to society’s politics and markets. When there is suspicion of corporate white-collar crime, the governance branch typically involved should be the compliance function, potentially cooperating with internal and external auditors as well as various controllers. Internal or external fraud examiners have the task of investigating suspicions by reconstructing past events and sequences of events. If fraud examiners find sufficient evidence of law violation, then the case stops, moves internally, or moves externally to the national criminal justice system. If secrecy to protect corporate reputation is the main concern, then the case typically stops and remains internal. However, organizations with inefficient or non-existing compliance functions, or governance branch generally, contribute to disorganized institutional deterioration.

Narcissistic Identification An element of institutional deterioration is the opportunity for the CEO to be narcissistic and to practice narcissistic identification with the enterprise. Narcissism is an individual’s inflated sense of self and preoccupation with having that self-view continuously reinforced (Hambrick and Wowak, 2021: 45): Narcissists crave attention, view themselves as strong leaders, and are highly confident in their abilities. Indeed, their intense need for applause compels narcissists to seek out or create situations that offer the opportunity for public acclaim. Some high-status individuals have a need for acclaim as narcissists (Chatterjee and Pollock, 2017; Zhu and Chen, 2015). If illegal financial gain can help achieve the desired acclaim, narcissists might feel entitled to commit crime (Nichol, 2019). Narcissists exhibit an unusual trust in themselves, believing that they are uniquely special and entitled to more benefits than are legitimately available to them (Galvin et al., 2015; Ouimet, 2010; Zvi and Elaad, 2018). The personality trait of narcissism expects preferential treatment. A pervasive pattern of grandiosity, a need for admiration, and an empathy deficit characterize

100 Institutional Deterioration narcissism. Narcissists tend to exaggerate self-enhancement after receiving positive feedback, and they tend to discount failure (Howes et al., 2020). Narcissistic identification is a special type of narcissism, where the offender sees little or no difference between self and the corporation. The company money is personal money that can be spent in whatever way the narcissist prefers (Galvin et al., 2015). Identification with the organization is the process through which an individual’s identity becomes entangled with, and imprinted by, the corporation. The person’s unique sense of self comes to be understood in reference to that organization, where the organization defines the individual self (Toubiana, 2020). If a CEO says and believes the statement “I am the company”, then the organization is in for trouble. Narcissism here means seeing oneself as central to the organization’s identity. It is a self-centered form of organizational identification. The CEO may lose his/her independent sense of self and engage in questionable behaviors on behalf of the organization. Narcissistic organizational identification is characterized by the domination of individual identity over organizational identity. CEOs with narcissistic organizational identification feel a strong affinity for their organizations’ identities, but as an expression of themselves. They see their own identity as the main reference for understanding what the organization is all about. Narcissism is associated with self-focus, self-admiration, a sense of entitlement, and a sense of superiority. Zhu and Chen (2015: 35) identified narcissism as a fundamental personality trait of CEOs and as such treat narcissism as a personality dimension rather than as a personality disorder: Narcissistic CEOs tend to favor bold actions, such as large acquisitions, that attract attention. They are less responsive than other CEOs to objective indicators of their performance and more responsive to social praise. For instance, while narcissistic CEOs tend to aggressively adopt technological discontinuities, they are especially likely to do so when such behavior is expected to garner attention and admiration from external audiences. Narcissism has both cognitive and motivational elements. In terms of cognitive thinking, narcissists tend to believe that they are extraordinarily talented and endowed with superior qualities such as intelligence, competence, innovativeness, and leadership. This inflated self-view makes them extremely confident in their abilities and judgment in most domains. In terms of motivational thinking, narcissistic individuals seek to have their inflated self-view continuously reaffirmed through various types of applause and admiration behavior by others in the environment. For example, narcissists seek to garner admiration by outperforming others whenever they can. If efforts to outperform others fail and no applause is achieved, narcissists tend to try to devalue others in order to reinforce their own uniqueness in the eyes of others (Zhu and Chen, 2015). Zhu and Chen (2015) measured CEO narcissism on three indicators. First, they coded the prominence of the CEO’s photograph in annual reports, where the most extreme is a CEO photo of him or her alone that occupies more than half a page. CEOs usually make specific demands about how their photos are portrayed

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in annual reports. Next, CEO prominence in company press releases was measured as the number of times the CEO was mentioned by name in the company’s press releases. CEOs usually exert stringent control over the content of company press releases and typically review all but the most routine issues. Finally, the CEO’s relative cash payment was measured as the CEO’s salary and bonus divided by that of the second-highest-paid executive in the organization. Because the CEO almost entirely controls the compensation of other executives, a narcissistic CEO can be expected to create a larger pay gap to underline that he or she is far more valuable than anyone else in the company. Self-potency, hubris, and narcissism are just some of the many personality disorders that can be found among some CEOs. Altruism is a different personality disorder that can be found at the other end of the spectrum since it is considered a positive phenomenon. But altruism has its dark sides. Altruism is a selfless exhibition of trading one’s personal resources to benefit another. These traded resources can be of great importance and value, with the individual sacrificing time, money, and other valuables for another. The moral impact of an individual’s actions depends solely on how they are received by others, regardless of the consequences on the individual itself (Furnham et al., 2016). In a situation where CEO narcissism causes institutional deterioration, CEO greed can emerge, as argued by Sajko et al. (2021: 962): Narcissism relates to greed because both concepts heavily draw on the notion of self-interest.

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102 Institutional Deterioration Chazan, G. (2021). Wirecard given no “privileged treatment” says German finance deputy, Financial Times, www.ft.com, published April 21. Crosina, E. and Pratt, M.G. (2019). Toward a model of organizational mourning: The case of former Lehman Brothers bankers, Academy of Management Journal, 62 (1), 66–98. Davidson, R.H., Dey, A. and Smith, A.J. (2019). CEO materialism and corporate social responsibility, The Accounting Review, 94 (1), 101–126. Dion, M. (2008). Ethical leadership and crime prevention in the organizational setting, Journal of Financial Crime, 15 (3), 308–319. Donk, D.P. and Molloy, E. (2008). From organizing as projects, to projects as organizations, International Journal of Project Management, 26, 129–137. Furnham, A., Treglown, L., Hyde, G. and Trickey, G. (2016). The bright and dark side of altruism: Demographic, personality traits, and disorders associated with altruism, Journal of Business Ethics, 134, 359–368. Galvin, B.M., Lange, D. and Ashforth, B.E. (2015). Narcissistic organizational identification: Seeing oneself as central to the organization’s identity, Academy of Management Review, 40 (2), 163–181. Ghannam, S., Bugeja, M., Matolcsy, Z.P. and Spiropoulos, H. (2019). Are qualified and experienced outside directors willing to join fraudulent firms and if so, why? The Accounting Review, 94 (2): 205–227. Goncharov, I. and Peter, C.D. (2019). Does reporting transparency affect industry coordination? Evidence from the duration of international cartels, The Accounting Review, 94 (3), 149–175. Gyõry, C. (2020). The institutional context of financial fraud in a post-transition economy: The Quaestor scandal, European Journal of Criminology, 17 (1), 31–49. Hambrick, D.C. and Wowak, A.J. (2021). CEO sociopolitical activism: A stakeholder alignment model, Academy of Management Review, 46 (1), 33–59. Hoffmann, J.P. (2002). A contextual analysis of differential association, social control, and strain theories of delinquency, Social Forces, 81 (3), 753–785. Hofmann, W., Wisneski, D.C., Brandt, M.J. and Skitka, L.J. (2014). Morality in everyday life, Science, 345 (6202), 1340–1343. Howes, S.S., Kausel, E.E., Jackson, A.T. and Reb, J. (2020). When and why narcissists exhibit greater hindsight bias and less perceived learning, Journal of Management, 46 (8), 1498–1528. Kagge, G. (2021). Merkel må forklare seg om hjelp til selskap anklaget for milliardsvindel (Merkel must explain herself about help to companies accused of billion fraud), daily Norwegian newspaper Aftenposten, published April 22, p. 24. Katz, J. (1979). Concerted ignorance: The social construction of cover-up, Urban Life, 8 (3), 295–316. Katz, J.P. (1999). The new global leaders: Richard Branson, Percy Barnevik, David Simon and the remaking of international business, Academy of Management Executive, 13 (3), 119–120. Kjeldsen, A.M. and Jacobsen, C.B. (2013). Public service motivation and employment sector: Attraction or socialization? Journal of Public Administration Research and Theory, 23 (4), 899–926. Kostova, T., Roth, K. and Dacin, M.T. (2008). Institutional theory in the study of multinational corporations: A critique and new directions, Academy of Management Review, 33 (4), 994–1006.

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Kourula, A., Moon, J., Salles-Djelic, M.L. and Wicker, C. (2019). New roles of government in the governance of business conduct: Implications for management and organizational research, Organization Studies, 40 (8), 1101–1123. KPMG (2020a). Report Concerning the Independent Special Investigation at Wirecard AG, April 27, audit firm KPMG, Munich, Germany, 74 pages. KPMG (2020b). Bericht über die unabhängige Sonderuntersuchung, Wirecard AG, April 27, audit firm KPMG, Munich, Germany, 74 pages. Loyens, K., Claringbould, I., Heres-van Rossem, L. and Eekeren, Frankvan. (2021). The social construction of integrity: A qualitative case study in Dutch football, Sports in Society, published online, doi:doi:10.1080/17430437.2021.1877661. Miceli, M.P. and Near, J.P. (2013). An international comparison of the incidence of public sector whistle-blowing and the prediction of retaliation: Australia, Norway, and the US, Australian Journal of Public Administration, 72 (4), 433–446. Nichol, J.E. (2019). The effects of contract framing on misconduct and entitlement, The Accounting Review, 94 (3), 329–344. Onna, J.H.R. and Denkers, A.J.M. (2019). Social bonds and white-collar crime: A twostudy assessment of informal social controls in white-collar offenders, Deviant Behavior, 40 (10), 1206–1225. Onna, J.H.R., Geest, V.R., Huisman, W. and Denkers, J.M. (2014). Criminal trajectories of white-collar offenders, Journal of Research in Crime and Delinquency, 51, 759–784. Ouimet, G. (2010). Dynamics of narcissistic leadership in organizations, Journal of Managerial Psychology, 25 (7), 713–726. Paruchuri, S., Han, J.H. and Prakash, P. (2021). Salient expectations? Incongruence across capability and integrity signals and investor reactions to organizational misconduct, Academy of Management Journal, 64 (2), 562–586. Perry, J., Hondeghem, A. and Wise, L. (2010). Revisiting the motivational bases of public service, Public Administration Review, 70 (5), 681–690. Pinto, J., Leana, C.R. and Pil, F.K. (2008). Corrupt organizations or organizations of corrupt individuals? Two types of organization-level corruption, Academy of Management Review, 33 (3), 685–709. Pratt, T.C. and Cullen, F.T. (2005). Assessing macro-level predictors and theories of crime: A meta-analysis, Crime and Justice, 32, 373–450. Qiu, B. and Slezak, S.L. (2019). The equilibrium relationships between performance-based pay, performance, and the commission and detection of fraudulent misreporting, The Accounting Review, 94 (2), 325–356. Rodriguez, P., Uhlenbruck, K. and Eden, L. (2005). Government corruption and the entry strategies of multinationals, Academy of Management Review, 30 (2), 383–396. Sajko, M., Boone, C. and Buyl, T. (2021). CEO greed, corporate social responsibility, and organizational resilience to systemic shocks, Journal of Management, 47 (4), 957–992. Shadnam, M. and Lawrence, T.B. (2011). Understanding widespread misconduct in organizations: An institutional theory of moral collapse, Business Ethics Quarterly, 21 (3), 379–407. Shichor, D. and Heeren, J.W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga, Journal of White Collar and Corporate Crime, 2 (2), 97–108. Solgård, J. (2021). Danske Banks toppsjef Chris Vogelzang går på dagen (Danske Bank’s top executive Chris Vogelzang leaves on the day), daily Norwegian business newspaper Dagens Næringsliv, www.dn.no, published April 19. Storbeck, O. (2020). Wirecard: The frantic final months of a fraudulent operation, Financial Times, www.ft.com, published August 25.

104 Institutional Deterioration Storbeck, O. (2021a). Prosecutors delayed arrest warrant for Wirecard’s Jan Marsalek, Financial Times, www.ft.com, published January 29. Storbeck, O. (2021b). German parliament expands probe into EY’s audits of Wirecard, Financial Times, www.ft.com, published April 22. Storbeck, O. and Morris, S. (2021). BaFin files insider trading complaint against Deutsche Bank board member, Financial Times, www.ft.com, published April 19. Swart, J. and Kinnie, N. (2003). Sharing knowledge in knowledge-intensive firms, Human Resource Management Journal, 13 (2), 60–75. Toubiana, M. (2020). Once in orange always in orange? Identity paralysis and the enduring influence of institutional logics on identity, Academy of Management Journal, 63 (6), 1739–1774. Williams, M.L., Levi, M., Burnap, P. and Gundur, R.V. (2019). Under the corporate radar: Examining insider business cybercrime victimization through an application of routine activities theory, Deviant Behavior, 40 (9), 1119–1131. Wright, B.E. (2007). Public service and motivation: Does mission matter? Public Administration Review, 67 (1), 54–64. Zhu, D.H. and Chen, G. (2015). CEO narcissism and the impact of prior board experience on corporate strategy, Administrative Science Quarterly, 60 (1), 31–65. Zvi, L. and Elaad, E. (2018). Correlates of narcissism, self-reported lies, and self-assessed abilities to tell and detect lies, tell truths, and believe others, Journal of Investigative Psychology and Offender Profiling, 15, 271–286.

8

Control of Guardianship

The fourth convenience theme in Figure 4.1 in the organizational opportunity dimension of convenience theory is labeled chaos, which indicates misconduct and crime convenience for the chief executive officer based on lack of oversight and guardianship. For example, at Danske Bank in Denmark, CEO Thomas Borgen took over a bank branch in Estonia without changing computer systems and banking language, thereby preventing auditors from the headquarters from reviewing the profitable business of money-laundering transactions by Russian criminals in the branch office (Bruun Hjejle, 2018; Högseth, 2019). Borgen had to resign from his position and was later sued by shareholders as well as investigated by Danish police (Milne, 2019a; Milne and Binham, 2018). Danske Bank’s former Estonian chief Aivar Rehe, who was at the heart of the €200 billion money-laundering scandal, was “found dead in an apparent suicide” in September 2019 (Milne, 2019b). In April 2021, the Danish prosecutor decided to close the case against former CEO Thomas Borgen while continuing the criminal investigation of Danske Bank. The former Danske Bank CEO was no longer charged in the money-laundering scandal. In order for individuals to be convicted under the money-laundering act in Denmark, it is required that there is solid evidence that they have shown gross negligence. The Danish prosecutor was unable to find such evidence for Thomas Borgen. Henrik Ramlau-Hansen and Lars Stensgaard Mørch, two other former Danske Bank executives, also had charges against them dropped (Klevstrand, 2021).

Lack of Oversight in Agency The perspective of principal and agent suggests that when a principal delegates tasks to an agent, the principal is often unable to control what the agent is doing. Agency problems occur when principal and agent have different risk willingness and different preferences, and when knowledge asymmetry regarding tasks exists (Eisenhardt, 1989). The principal–agent perspective (or simply agency perspective) can illuminate fraud and corruption in an organizational context. The principal may be a board of a company that leaves the corporate management to the chief executive officer (CEO). The CEO is then the agent in the relationship. The DOI: 10.4324/9781003302254-8

106 Control of Guardianship CEO in turn may entrust tasks to other executives, where the CEO becomes the principal, while people in positions such as chief financial officer (CFO), chief operating officer (COO), and chief technology officer (CTO) are agents. Agents perform tasks on behalf of principals. A CEO may cheat and defraud owners (Khanna et al., 2015; Zahra et al., 2005; Williams, 2008), and a purchasing manager can fool the CEO when selecting vendors (Chrisman et al., 2007) by taking bribes that can cause the company to pay more for inferior quality, for instance. The agency perspective assumes narrow self-interest among both principals and agents. The interests of principal and agent tend to diverge, and the principal has imperfect information about the agent’s contribution (Bosse and Phillips, 2016). According to principal–agent analysis, exchanges can encourage illegal private gain for both principal and agent (Pillay and Kluvers, 2014). Managers are viewed as opportunistic agents motivated by individual utility maximization. Taking an economic model of humanity that treats human beings as rational actors seeking to maximize individual utility – when given the opportunity – executives and other members of the elite will maximize their own utilities at the expense of shareholders and others. As evidenced by many internal investigation reports by fraud examiners after white-collar crime scandals, internal auditors, external auditors, compliance committees, and other internal and external control units do not function properly (e. g., Bruun Hjejle, 2018; Clifford Chance, 2020; Deloitte, 2015, 2017; Mannheimer Swartling, 2016; Shearman Sterling, 2017). Oversight and control functions tend to be formal units without any insights into the substance of business activities. They tend to review procedures rather than transactions within procedures. Therefore, ineffective control functions are often an important part of the opportunity structure for white-collar crime. For example, at Toshiba Corporation, lack of controls was an important element of the opportunity structure (Deloitte, 2015). Fraud examiners emphasized lack of internal controls by accounting and auditing functions, as well as lack of finance control in each corporate division. At Wells Fargo, corporate control functions were constrained by the decentralized organizational structure (Shearman Sterling, 2017; Shichor and Heeren, 2021). Fraud examiners excused corporate control functions since they suffered from harm by the decentralized organizational structure and a culture of substantial independence for business units. At Fuji Xerox, CEO Whittaker had gained control over reporting lines to manipulate accounting (Deloitte, 2017). At Danske Bank, where money laundering occurred in their Estonian branch, corporate control functions did not work because the branch operated computer systems different from computer systems at the headquarters (Bruun Hjejle, 2018). Telenor executives ignored corruption rumors at VimpelCom since the chief compliance officer and chief legal officer did not know how to handle whistleblowing (Deloitte, 2016). Lack of oversight and guardianship becomes even worse when auditors slide over on the wrong side of the law. Mohliver (2019: 310) found that some auditors prioritize their clients’ interests over their legal obligation by recommending client malfeasance – for example, in terms of illegal stock-option backdating:

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The findings suggest that professional experts’ involvement in the diffusion of liminal practices is highly responsive to the institutional environment. Auditors are supposed to serve as gatekeepers to protect shareholders and report directly to shareholder representatives on the board of directors, but auditors become surprisingly often hired by corporate management to whom they are loyal (Hurley et al., 2019). Reporting fraud to public authorities will also harm auditors (Mohliver, 2019: 316): As organizations, audit firms are often severely penalized for client malfeasance. Yet the individual auditors working for these firms are susceptible to “motivated blindness” stemming from conflicts of interest that bias their moral judgment toward choices that help their clients. Mohliver (2019) found that auditor bias towards accepting deviant financial reports increases when there is ambiguity about the appropriateness of a course of action. Financial misreporting that is viewed favorably by the client organization can be recommended by external auditors on the grounds that such reporting is already adopted among companies served by the same auditing firm.

Lack of Whistleblowing Willingness Lack of whistleblowing is an important part of the opportunity structure for whitecollar crime. When people notice wrongdoing in the organization, they are reluctant to report it because of perceived retaliation threats. As argued by Keil et al. (2010), costs tend to exceed benefits for individual whistleblowers. In addition, as argued by Bussmann et al. (2018), employees in societies characterized by collectivist values are reluctant to blow the whistle on others. Whistleblowing is the disclosure by an individual in an organization or in society of deviant practices to someone who can do something about it (Bjørkelo et al., 2011). Whistleblowing is an action by employees who believe that their business or colleague(s) is involved in activities of misconduct or crime, causes unnecessary harm, violates human rights, or contributes to otherwise immoral offenses (Mpho, 2017). Whistleblowing is the disclosure by an organizational member of deviant practices to someone who can do something about it. Whistleblowers stand out as a group of reporters who have made observations and who are willing to disclose what they have observed. However, executives may try to withhold bad news (Bao et al., 2019) and punish whistleblowers by reprisals and retaliation. A potential whistleblower might thus be afraid of retaliation. Retaliation makes informants reluctant to blow the whistle. Reprisal and retaliation against a whistleblower represent an outcome between an organization and its employee, in which members of the organization attempt to control the employee by threatening to take, or actually taking, an action that is detrimental to the well-being of the employee (Mesmer-Magnus and Viswesvaran, 2005).

108 Control of Guardianship If someone blows the whistle on observed wrongdoing, it is not at all certain that the receiver of the message will react by following it up. Kaplan et al. (2020) found that anonymous reports by whistleblowers are perceived as less credible and follow-up intentions are weaker. Perceived credibility seems to mediate the relationship between whistleblowing reports and follow-up intentions. Previous confrontation is not significantly associated with either perceived credibility or followup intentions. The lack of whistleblowing is an organizational inhibitor in relation to addressing white-collar crime and thus an enabler of wrongdoing. Shepherd and Button (2019) suggest that a range of avoidant rationalizations constructed by observers justify not noticing, reporting, or tackling white-collar crime. These rationalizations and justifications for disregard of observed wrongdoing can be similar to those rationalizations applied by offenders when committing crime, such as denial of victim and denial of damage (Kaptein and Helvoort, 2019).

Misleading Crime Attribution Guardianship, oversight, and control become more difficult in times of wrongdoing by misleading attributions. The attribution perspective implies that whitecollar offenders are able to attribute causes of crime to everyone else but themselves in the organization. Attribution theory is about identifying causality predicated on internal and external circumstances (Eberly et al., 2011). External attributions place the cause of a negative event on external factors, absolving the account giver and the privileged individual from personal responsibility. Innocent subordinates receive blame for crime committed by elite members (Lee and Robinson, 2000). According to Sonnier et al. (2015: 10), affective reactions influence blame attribution directly and indirectly by altering structural linkage assessments: For example, a negative affective reaction can influence the assessment of causation by reducing the evidential standards required to attribute blame or by increasing the standards of care by which an act is judged. When the Siemens corruption scandal emerged in the public domain, top management attempted to blame lower-level managers (Berghoff, 2018: 423): At first the company defended itself with set phrases like “mishaps of individuals” and isolated offenses committed by a “gang” of criminals, or “This is not Siemens”. Status-related factors such as influential positions, upper-class family ties, and community roles often preclude perceptions of blameworthiness (Slyke and Bales, 2013). According to the attribution perspective, parties involved in a personal conflict or crime suspicion will naturally wonder “Why is this happening?” in the hope that if they understand the negative event, they might be able to predict its

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cause. The cause can be either individual behavior (personal attribution) or organizational behavior (system attribution). The attribution perspective suggests that – all else being equal – the odds are in favor of making a personal attribution (Keaveney, 2008). If a white-collar offender fails to attribute crime to another individual, then there is the alternative of blaming the system. Attribution theory explains that individuals attribute responsibility for both their own and others’ behavior. The central premise is that attributions of responsibility depend on whether individuals view the causes of behavior as a result of internal or external factors. If individuals determine that a behavior results from internal factors in terms of actor personality characteristics and actor disposition, then they will typically attribute the behavior to the actor. Alternatively, individuals can attribute the behavior to other people or the situation such as social structure or organizational context. The strength of attribution in terms of responsibility can depend on a number of factors such as causality, knowledge, intentions, and seriousness (Gailey and Lee, 2005).

Crime Signal Detection Control functions in charge of crime signal detection have to make decisions when there is a new signal. The perspective of crime signal detection suggests that there is often too much interference and noise for white-collar crime to reach the attention of observers. There are four possibilities in the decision matrix of the observer of potential misconduct and crime (Karim and Siegel, 1998: 368):    

The observer notices a noise when it is a signal (called a miss). The observer notices a signal when it is a signal (called a hit). The observer notices a noise when it is a noise (called a correct identification). The observer notices a signal when it is a noise (called a false alarm).

The observer needs to decide about the event and classify it as either a signal or a noise. In an organizational context, where less powerful individuals may suspect powerful individuals, the less powerful will conveniently prefer to think of the event as a noise signal rather than as a crime signal. The perspective of crime signal detection holds that the observation of a stimulus depends on both the intensity of the stimulus and the physical and psychological state of the observer. An observer’s ability or likelihood to detect some stimulus depends on the intensity of the stimulus as well as the extent of alertness of the observer. Perceptual sensitivity depends upon the perceptual ability of the observer to detect a signal or target or to discriminate signal from non-signal events (Szalma and Hancock, 2013). Furthermore, detecting persons may have varying ability to discern between information-bearing recognition (called pattern) and random patterns that distracts from information (called noise), as illustrated by the four possibilities in the decision alternatives above. Lack of oversight and guardianship can thus be the result of failed crime signal detection versus noise signal detection. The ethical climate can be another element of the opportunity structure for white-collar crime. The ethical climate perspective defines five distinct climate

110 Control of Guardianship types within organizations: instrumental, caring, independence, rules, and law and code. A work climate is the sum of perceptions that provide meaningful insights into the working environment, which people can agree characterize an organization’s values, practices, and procedures. The instrumental climate is the climate in which Murphy and Free (2015) believe fraud is most likely to occur. Instrumental means that executives and others in the organization tend to prioritize decisions that either provide personal benefits or serve the organization’s interests with little regard for ethical considerations. There is an association between instrumental climate and workplace deviance extending to fraud. Workplace deviance is voluntary behavior that violates significant organizational norms and in so doing threatens the well-being of an organization, its members, or both. However, fraud and corruption can be a consequence of following, rather than violating, an organizational norm. For example, a case against Siemens in Germany alleged that Siemens executives abroad routinely bribed foreign officials as part of an overall pattern of corporate conduct in marketing. The climate encouraged corruption and fraudulent behavior as normal and acceptable (Murphy and Dacin, 2011). Lack of oversight and guardianship was obvious in the Siemens corruption scandal, as phrased by the judge in German court (Berghoff, 2018: 430): He compared the Siemens compliance department with “fire fighters, who were equipped with a toothbrush mug to extinguish major fires”. Lack of control is both a formal and social phenomenon. Social-control agents can have the legitimate authority to define specific conduct as right and wrong. When social-control agents are missing or not functioning, then executives have no way of reacting to deviance and misconduct by other executives. An example of managerial misconduct occurs when management intentionally misleads investors or when shareholders become injured as a result of management’s disclosure decisions (Jennings, 2019).

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112 Control of Guardianship Mannheimer Swartling (2016). Report on Investigation of Nordea Private Banking in Relation to Offshore Structures, law firm Mannheimer Swartling, Stockholm, Sweden, 42 pages. Mesmer-Magnus, J.R. and Viswesvaran, C. (2005). Whistleblowing in an organization: An examination of correlates of whistleblowing intentions, actions, and retaliation, Journal of Business Ethics, 62 (3), 266–297. Milne, R. (2019a). Prosecutors charge ex-Danske Bank chief in money laundering probe, Financial Times, www.ft.com, published May 7. Milne, R. (2019b). Body of Danske Bank’s former Estonian chief found, Financial Times, www.ft.com, published September 25. Milne, R. and Binham, C. (2018). Danske Bank chief Thomas Borgen quits over money laundering scandal, Financial Times, www.ft.com, published September 19. Mohliver, A. (2019). How misconduct spreads: Auditors’ role in the diffusion of stockoption backdating, Administrative Science Quarterly, 64 (2), 310–336. Mpho, B. (2017). Whistleblowing: What do contemporary ethical theories say? Studies in Business and Economics, 12 (1), 19–28. Murphy, P.R. and Dacin, M.T (2011). Psychological pathways to fraud: Understanding and preventing fraud in organizations, Journal of Business Ethics, 101, 601–618. Murphy, P.R. and Free, C. (2015). Broadening the fraud triangle: Instrumental climate and fraud, Behavioral Research in Accounting, 28 (1), 41–56. Pillay, S. and Kluvers, R. (2014). An institutional theory perspective on corruption: The case of a developing democracy, Financial Accountability & Management, 30 (1), 95–119. Shearman Sterling (2017). Independent Directors of the Board of Wells Fargo & Company: Sales Practices Investigation Report, law firm Shearman Sterling, New York, NY, 113 pages. Shepherd, D. and Button, M. (2019). Organizational inhibitions to addressing occupational fraud: A theory of differential rationalization, Deviant Behavior, 40 (8), 971–991. Shichor, D. and Heeren, J.W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga, Journal of White Collar and Corporate Crime, 2 (2), 97–108. Slyke, S.R.V. and Bales, W.D. (2013). Gender dynamics in the sentencing of white-collar offenders, Criminal Justice Studies, 26 (2), 168–196. Sonnier, B.M., Lassar, W.M. and Lassar, S.S. (2015). The influence of source credibility and attribution of blame on juror evaluation of liability of industry specialist auditors, Journal of Forensic & Investigative Accounting, 7 (1), 1–37. Szalma, J.L. and Hancock, P.A. (2013) A signal improvement to signal detection analysis: fuzzy SDT on the ROCs, Journal of Experimental Psychology: Human Perception and Performance, 39 (6), 1741–1762. Williams, J.W. (2008). The lessons of “Enron” – Media accounts, corporate crimes, and financial markets, Theoretical Criminology, 12 (4), 471–499. Zahra, S.A., Priem, R.L. and Rasheed, A.A. (2005). The antecedents and consequences of top management fraud, Journal of Management, 31, 803–828.

9

Criminal Network Member

The fifth and final convenience theme in Figure 4.1 in the organizational dimension of convenience theory is labeled collapse, characterized by the convenient entry of the chief executive officer into a criminal network as a cartel member. For example, at Sector Alarm in Norway, CEO Jørgen Dahl accepted payment of a fine of NOK 467 million (about USD 45 million) because of cartel activity involving competitor Verisure. The chief executive at Verisure, Tore Staveland did not accept payment of the fine of NOK 766 million (about USD 75 million). In 2021, a cartel with members from the alarm industry was exposed in the media. Alarm companies such as Sector Alarm and Verisure were detected and fined by the Norwegian Competition Authority two years earlier (Krattum, 2019). The authority had evidence that the companies had collaborated on market sharing and not selling home alarms to each other’s customers between 2011 and 2017 (Brenli, 2020: Svendsen and Solheimsnes, 2021). The section of Norwegian law that is violated by a cartel is § 10 in the law regarding competition among enterprises: Any agreement between enterprises, any decision taken by associations of enterprises, and any concerted practice, which has the purpose or effect of preventing, restricting, or distorting competition is prohibited, in particular those (a) to determine directly or indirectly purchase or sale prices or other business terms, (b) to limit or control production, sales, technical development or investments, (c) to divide markets or sources of supply, (d) to apply to trading partners different conditions for equal services and thereby place them less favorably in the competition, (e) to make the closing of contracts conditional on the co-contractors accepting additional services which, by their nature or in accordance with normal business practice, have no connection with the object of the contract.

Corporate Cartel Activities A cartel is a typical criminal network involving chief executive officers from competing firms who have chosen to have their businesses cooperate illegally in the market (Bertrand and Lumineau, 2016; Goncharov and Peter, 2019; Jaspers, DOI: 10.4324/9781003302254-9

114 Criminal Network Member 2020). Cartels are illegal associations of corporations who cooperate rather than compete on the same markets. Cartel members enter into agreements where they divide markets among themselves, decide on pricing, and agree on production quotas for each member. The purpose is to avoid competition to increase profits without a need for efficiency, effectiveness, and innovation. Customers of cartel members suffer by paying too much for goods and services of inferior quality (Bertrand and Lumineau, 2016; Jaspers, 2020). If cartel is the name of the game in an industry, the only way to survive might be to join the cartel, where cartel members divide markets among themselves (Freiberg, 2020; Goncharov and Peter, 2019; Nielsen, 2003). A cartel is an association of independent firms in the same industry that strive to reduce competition by agreeing on areas such as market sharing, pricing levels, and production quotas. A cartel is collective misconduct of firms (Bertrand and Lumineau, 2016: 983): Instead of competing with one another, cartel members rely on each other’s agreed course of action. Consequently, these underhanded agreements reduce the member firms’ incentives to provide new or better products and services at competitive prices. Their clients (other businesses or final consumers) ultimately pay more for lower quality. Final consumers observe a reduction in their welfare, and businesses suffer from more expensive inputs. By artificially decreasing the natural level of competition in the market, cartels decrease the overall competitiveness not only of the cartelized industry but also of other industries. The damage to customers and other businesses can thus be significant, particularly when cartels are able to last for years. Bertrand and Lumineau (2016) studied cartels that were prosecuted between 2001 and 2011 by the Directorate General for Competition within the European Commission. The directorate is responsible for enforcing the European antitrust regime. The sample consisted of 41 cartels with 463 members. The study purpose was to understand the variety of age-based experience, the separation in uncertainty avoidance, and the power disparity in cartels. The study found evidence that the diversity of members involved in cartels is a critical factor of the longevity of such secret activity. The cartels with the longest lifetime until detected and prosecuted were characterized by a high variety of age-based experience, by cultural similarity, and by one firm being the leader in each cartel. Cartels survived for a shorter period of time when group members had similar backgrounds, did not share the same values, and did not have a leader to manage the group. Markets with crime forces can represent painful corporate economic threats. In many markets, there are cartels that regulate the supply side. A cartel is an implicit agreement between firms in the same industry to fix prices, to divide customers and markets among themselves, to fix industry outputs, to allocate territories, or to divide profits (Goncharov and Peter, 2019: 152): Cartel members seek to act collectively, as if they were a single monopolist, thereby maximizing the collective profit. By doing so, cartels violate competition

Criminal Network Member 115 policy and severely reduce consumer welfare through price-fixing activities that increase the price of goods far beyond the competitive level. Recent evidence shows that the average price overcharges by cartels prosecuted by U.S. and EU cartel authorities were 48.4 and 32.2 percent, respectively. Supply to some customers occurs only from some vendors, while supply to other customers occurs only from other vendors in the cartel. There is only symbolic competition between vendors as far as they all seem to offer their products to all potential customers. Cartel members agree not only on market division but also on prices to various customers. When a public procurement officer asks for offers from all potential vendors, they may all provide an offer. However, they have agreed who is next in line by determining the relative price offer among themselves. The vendor next in line provides an expensive offer to the public procurement officer, while the remaining vendors provide offers that are even more expensive to the public procurement officer.

Corporate Corruption Networks Sutherland (1939, 1983) emphasized attitudes in society where people consider white-collar crime as less serious than traditional street crime. While convenience theory so far emphasizes factors at the individual and organizational level, Sutherland (1983) emphasized hypotheses at the community level. In its earlier version, convenience theory was lacking explicit representations of communitylevel factors such as criminal market structures including competition-avoiding cartels (Goncharov and Peter, 2019) and corruption networks (Nielsen, 2003). In its current version, convenience theory applies three levels of analysis. In addition to the individual and the organization as units of analysis, the community is the unit of analysis mainly in an opportunity perspective. Community-level factors such as corruption networks enable individuals and organizations to commit and conceal white-collar crime. At the community level, the focus is not on the isolated individual act of providing a bribe or receiving a bribe, but rather “the systematic, pervasive sub-system of bribery that can and has existed across historical periods, geographic areas, and political-economic systems” (Nielsen, 2003: 125). If the third level of criminal market structures is defined as the individual perceptions of structures rather than the actual structures, then the extent of criminal market structures can vary with white-collar offenders. While cartels can represent painful corporate economic threats as discussed earlier in the economical dimension of convenience theory, a cartel can represent an opportunity for those enterprises that have joined the cartel. In many markets, there are cartels that regulate the supply side. Cartel members agree not only on market division but also on prices to various customers (Goncharov and Peter, 2019). The social exchange perspective aids explanations of how power structures in cartels and corruption networks develop and institutionalize through relationship building and social exchanges among participating enterprises. The perspective suggests that organizational activities are contingent on the actions of other

116 Criminal Network Member organizations. The successful cartels and networks are dependent on the generation of obligations and the fulfillment of rewards. Relational efforts in an industry or in a community lead to repeated patterns of interactions that may develop into durable institutions of interdependencies in cartels and networks (Cropanzano and Mitchell, 2005; Lawler and Hipp, 2010). Cartels and corruption networks are important to many global business enterprises. When the corruption case at Siemens became public, Murphy and Dacin (2011) found that the business climate encouraged corruption and fraudulent behavior as normal and acceptable. To cope with the scandal, Siemens replaced its management board (Berghoff, 2018: 423): Siemens is one of the world’s leading electrical engineering corporations. In 2006, a massive corruption scandal erupted, concluded in 2008 with a record fine. For Siemens the largest risk was being barred from government contracts. As a consequence, it replaced virtually its entire managing board, an unprecedented procedure in the history of the company. However, the criminal market structures did not change. Siemens thus “thrived in the cozy world of national monopolies and cartels, which guaranteed high margins and no worries about rivals” (Berghoff, 2018: 425). While the new management at Siemens attempted trust repair among stakeholders by introducing updated rules and guidelines, Eberl et al. (2015: 1205) found that the new rules were paradoxical in nature and thus difficult to implement in practice: Our findings suggest that tightening organizational rules is an appropriate signal of trustworthiness for external stakeholders to demonstrate that the organization seriously intends to prevent integrity violations in the future. However, such rule adjustments were the source of dissatisfaction among employees since the new rules were difficult to implement in practice. We argue that these different impacts of organizational rules result from their inherent paradoxical nature. After a white-collar scandal, many companies attempt window dressing by introducing new rules for their employees. However, the new rules do not necessarily apply to those levels in the organization where you find the criminals. For example, when top executives at the Norwegian company Yara were charged with corruption, and one of them ended up in prison, the company introduced new anti-corruption rules that did not apply to the top executives. They continued to enjoy freedom of choice in their business decisions. The chief compliance officer continued to report to an executive whose predecessor in the position ended up in jail.

Rule Complexity Collapse Collapse can occur from rule complexity preventing compliance (Lehman et al., 2020), in addition to participation in crime networks such as cartels (Nielsen,

Criminal Network Member 117 2003), and financial crime as the usual way of business in markets with crime forces (Chang et al., 2005). Collapse represents a convenient situation for everybody ready to commit white-collar crime. Rule complexity can create a situation where nobody is able to tell whether an action represented a criminal offense. It is impossible to understand what is right and what is wrong. Some laws, rules, and regulations are so complex that compliance becomes random, where compliance is the action of complying with laws, rules, and regulations. The regulatory legal environment is supposed to define the boundaries of appropriate organizational conduct. However, legal complexity is often so extreme that even specialist compliance officers struggle to understand what to recommend to business executives in the organizations (Lehman et al., 2020). Then regulatory inspection does not work for compliance (Braithwaite, 2020). Business executives can thus find the large gray area in legal matters a convenient space for misconduct and crime. This is especially so when operating internationally and globally where states do not agree on what should be legal and illegal activities (Boghossian and Marques, 2019; Pontell et al., 2020). Eberlein (2019) argues that globalization opens markets for corporations but outstrips the capacity of states to regulate and enforce laws on cross-border business conduct for the public good. Similarly, Schneider and Scherer (2019: 1147) argue, “The extent to which state authorities can regulate the externalities and the behavior of multinational corporations is limited”, and “Gaps in governance abound in today’s globalized world”. There is an erosion of state power and a shift towards private regulation. National governments collectively are taking limited initiatives through the OECD, European Union, United Nations, and other multinational organizations. Maher et al. (2019) found that governments are reluctant to intervene not just in global business but also in local business. They observed an ambiguity of the state to involve itself. This is in line with the observation by Pontell et al. (2014) that some companies are too big to fail, and some white-collar offenders are too powerful to jail. When rule complexity is linked to anomie in the sense of low commitment to mainstream rules in the organization (Schoepfer and Piquero, 2006), the organizational opportunity for financial crime is further enhanced. The organization is reluctant to follow mainstream rules that are too complicated. The reluctance becomes stronger when mainstream rules will harm business performance. Trying to follow the law may result in inefficient business practices that depress organizational results and hurt the careers of organizational members. Noncompliance might allow the corporation to be more profitable than competitors who follow the rules. Monopolies, cartels, and crime networks do not only represent threats in the motivational dimension of convenience theory (Chang et al., 2005; Geest et al., 2017). For deviant members of the elite, monopolies, cartels, and crime networks can represent attractive avenues for extra profits (Freiberg, 2020; Goncharov and Peter, 2019). Participation in criminal networks can be attractive (Nielsen, 2003), especially if criminogenic market symptoms cause markets with crime forces to be the usual way of doing business (Chang et al., 2005).

118 Criminal Network Member Organizational opportunity for white-collar crime derives from interactions with the external environment for the CEO. Rule complexity, crime networks, and deviance by other actors externally are all factors that can enhance the convenience for white-collar offenders internally. An additional perspective here is situational action suggesting that crime is a social and behavioral outcome of interactions between human beings and their environments. What is the right or wrong thing to do or avoid doing in a situation depends on the interaction of internal and external factors (Kessler and Reinecke, 2021). Interaction with the external situation might enable a potential offender to perceive more deviant alternatives for action (Kroneberg and Schultz, 2018; Liu et al. 2020). The situational action perspective addresses how environments shape crime opportunities and, subsequently, how modifications in environments can increase criminal opportunities (Huisman and Erp, 2013). When the situational action perspective by Wikstrom et al. (2018) distinguishes between three stages, (1) perception of action alternatives (legal alternatives, illegal alternatives), (2) process of choice (habit, rational deliberation), and (3) action, then Kroneberg and Schultz (2018) conceptualize lack of self-control as well as lack of deterrence on the axis from (2) to (3). The latter items belong in the willingness dimension of convenience. The situational action perspective aims to integrate personal and environmental explanatory perspectives within the framework of a situation. Kleinewiese (2020: 1) expanded the situational action theory (SAT) to groups: Building upon previous literature on social cohesion in groups (such as team spirit/esprit de corps), the group present in the setting is presumably more likely to be identified by the individual if such group cohesiveness is high. When perceived, the moral norms of the group and deterrence should have an influence through becoming part of the setting in the causation of crime, according to SAT. This application suggests that SAT is a fruitful approach for explaining the impacts of groups on crime. As cited above, 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”. Coleman (1987: 409) describes an opportunity as any “potential course of action, made possible by a particular set of social conditions, which has been symbolically incorporated into an actor’s repertoire of behavioral possibilities”.

Norwegian Cartel Convenience The case of a security services cartel involving Sector Alarm and Verisure in Norway was presented above involving chief executives Jørgen Dahl and Tore Staveland (Brenli, 2020; Krattum, 2019; Svendsen and Solheimsnes, 2021). Another Norwegian case involves a subsidiary of the global corporation Asea Brown Boveri (ABB) headquartered in Switzerland. The chief executive at ABB from 1988 to 2002 was the Swede Percy Barnevik, stationed in Zürich in

Criminal Network Member 119 Switzerland. After Barnevik’s resignation, he became the center of a giant pension dispute that shook Sweden in 2003. When the new ABB board made the pension payment public, Barnevik was forced to resign from other positions and return a large fraction of his pension to ABB (Shah, 2002). A few years earlier, researchers compared ABB’s Percy Barnevik to Virgin’s Richard Branson in terms of charisma in action by transformational abilities (Vries, 1998) as one of the new global leaders (Katz, 1999). Barnevik’s fall from grace was thus very steep. When the Soviet Union turned partly into Russia and the iron curtain in East Europe fell, many western European companies wanted to approach the Russian market. One of them was a small Norwegian ABB subsidiary that was in the business of producing signaling cables for car and computer manufacturers. In every BMW car there was one meter of cable produced in Norway, and in many Siemens computers, there was a short piece of cable produced in Norway. When approaching the Russian market, meetings in Moscow with interested parties were quite successful. However, when returning to Norway, the sales approach was stopped by the headquarters in Switzerland. Norwegians were told that they were not allowed to approach the Russian market. The Russian market belonged to the Finnish cable producer Nokia. In return, Nokia stayed away from Sweden and Norway, while ABB stayed away from Finland as well as Russia. This came as no surprise to the Norwegian subsidiary, since they already knew that the local cable market in Norway was divided between ITT (later Alcatel) and ABB, where some wholesalers were customers of ITT, while other wholesalers were customers of ABB. It was no surprise to the Norwegians also because they had the same experience in other parts of the cable market. Just as they themselves were part of a cartel in the cable market, they knew that their customers were part of cartels as well. When they sold cables for electricity rather than for signals, large construction entrepreneurs such as Skanska (Landre, 2006), Peab (Gedde-Dahl et al., 2007), Veidekke (Landre, 2006; Lilleås, 2011), NCC (Landre, 2006; Lilleås, 2011), AF Group (Brandvol, 2016), and others did not really compete with each other. When the main airport in Norway at Gardermoen outside the capital of Oslo was expanded, the costs far exceeded forecasts because of cartel activity. Similarly, when the Norwegian parliament buildings in Oslo were renovated and expanded, the costs far exceeded forecasts because of cartel activity. It was expected that the same would be the case when the new government center in Oslo was to be rebuilt in the late 2020s after the terrorist attack in 2011. The named companies had experienced some minor fines and lenience in exchange for cartel confessions to the Norwegian regulatory authorities (Lilleås, 2011). One frequent cartel pricing approach is to agree among cartel members on who is next in line. That business provides a very expensive offer to the customer. The other cartel members provide offers as well, but they price their offers even higher than the business that is next in line (Goncharov and Peter, 2019). Norwegian cartel convenience can be found in the low detection rate as well as the modest fines when detected. Gottschalk and Gunnesdal (2018) have estimated that fewer than one in ten white-collar offenders are detected and brought to

120 Criminal Network Member justice. The fines that companies have to pay tend to represent less than a month’s revenues and less than one year’s profit.

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122 Criminal Network Member Schoepfer, A. and Piquero, N.L. (2006). Exploring white-collar crime and the American dream: A partial test of institutional anomie theory, Journal of Criminal Justice, 34 (3), 227–235. Shah, S. (2002). ABB demands Barnevik repay part of pension, Independent, www.indep endent.co.uk, published February 14. Sutherland, E.H. (1939). White-collar criminality, American Sociological Review, 5 (1), 1–12. Sutherland, E.H. (1983). White Collar Crime: The Uncut Version, New Haven, CT: Yale University Press. Svendsen, M. and Solheimsnes, P.A. (2021). Massesøksmål mot alarmselskaper (Mass lawsuits against alarm companies), daily Norwegian newspaper Aftenposten, April 29, p. 22. Vries, K. (1998). Charisma in action: The transformational abilities of Virgin’s Richard Branson and ABB’s Percy Barnevik, Organizational Dynamics, 26 (3), 7–21. Wikstrom, P.O.H., Mann, R.P. and Hardie, B. (2018). Young people’s differential vulnerability to criminogenic exposure: Bridging the gap between people- and place-oriented approaches in the study of crime causation, European Journal of Criminology, 15 (1), 10–31.

10 Research Propositions

This chapter presents research propositions for each of the 14 convenience themes, starting with themes for motive, followed by themes for opportunity and willingness. Suggested categories of convenience themes in the convenience triangle for trusted chief executives are illustrated in Figure 4.1. The three corners of the triangle are financial motive, organizational opportunity, and willingness for deviant behavior. The motive derives either from possibilities or threats for the individual or the organization. The opportunity derives mainly from committing or from concealing financial crime. To commit crime is convenient for high-status individuals with legitimate access to resources. To conceal crime is convenient when there is institutional deterioration (decay), lack of oversight and guardianship (chaos), and criminal market forces (collapse). Crime as a choice can derive from offender identity, rationality, and learning. Crime based on perceived innocence can derive from justification and neutralization of guilt.

Motivational Crime Themes At the individual level of possibilities, greed is the most acknowledged motive for financial crime by white-collar offenders (Bucy et al., 2008; Hamilton and Micklethwait, 2006). Goldstraw-White (2012) defined greed as socially constructed needs and desires that can never be completely covered or contended. Greed can be a very strong quest to get more and more of something, and there is a strong preference to maximize wealth. To outsiders, it may seem strange that rich people have such a strong desire to become even richer that they are willing to break the law. However, as the definition indicates, greedy individuals are never happy with what they have, as they desperately want more all the time. Prosperity is not a means but a goal for greedy individuals. Greed can grow when the organization does not have an adequate reaction (Haynes et al., 2015). Sajko et al. (2021: 961) studied CEO greed where they defined greed as selfinterest by excessive materialistic desire and lack of concern for the well-being of others: Greed, which is most commonly defined as an excessive materialistic desire to acquire personal wealth, can be seen as the “dark” end of the self-interest DOI: 10.4324/9781003302254-10

124 Research Propositions continuum – that is, hyper-self-interest […] While self-interest is morally neutral, greed carries a moral charge […] Greed by definition implies a lack of concern for the well-being of others. The hierarchy of needs is another well-known motive for financial crime by whitecollar offenders. Needs start at the bottom with physiological needs, needs for security, social needs, and needs for respect and self-realization. When basic needs such as food and shelter are satisfied, then the person moves up the pyramid to satisfy needs for safety and control over his or her own life situation (Maslow, 1943). Higher up in the pyramid, the person strives for self-respect, status, recognition, and admiration (Cleff et al., 2013; Hausman, 2018). An important factor in many societies is the American dream of prosperity and success as the ultimate goal of life (Schoepfer and Piquero, 2006). It is an extreme one-sided emphasis on success in exposed assets (Trahan et al., 2005), and it is not matched by a concurrent emphasis on what means are legitimate for reaching desired goals. If illegal financial gain can help achieve desired acclaim, narcissists in particular might feel entitled to crime (Galvin et al., 2015). Proposition 1a. As personal greed increases, financial crime will seem more convenient for a chief executive in a trusted position. The strain perspective has become one of the leading theoretical explanations for crime (Langton and Piquero, 2007). The strain perspective argues that a range of factors influence whether individuals cope with strains through crime (Thaxton and Agnew, 2018: 888): Criminal coping is said to be most likely among those with poor coping skills and resources, little social support, low social control, beliefs favorable to crime, criminal associates, and opportunities for crime. The strain perspective emphasizes strains and stressors that increase the likelihood of crime, the negative emotions (including anger) resulting from those strains that create pressure for corrective action, and the factors that influence or condition the likelihood of criminal coping (Thaxton and Agnew, 2018). Stress is a psychological state that arises from a mismatch between perceived demands and one’s ability to meet those demands given available resources (Linder et al., 2021). Strains are events and conditions that individuals dislike. Strains lead to negative emotions and thereby create pressure for corrective action. Crime is one possible action, which seems attractive to some privileged members of the elite as a means to escape from or reduce strains (Froggio and Agnew, 2007; Ngo and Paternoster, 2016) such as the fear of falling from an elite position (Kouchaki and Desai, 2015; Piquero, 2012). The strain of pursuing goals within diverse possibility structures may lead to adaptations such as crime, delinquency, and other deviant behaviors. Delinquency results when individuals are unable to achieve their goals through legitimate channels (Vilalta et al., 2021).

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Proposition 1b. As personal strain increases, financial crime will seem more convenient for a chief executive in a trusted position. Escalation of commitment to ambitious business goals increases the likelihood of misconduct and crime (Sleesman et al., 2012, 2018). Escalation of commitment is defined as “decision-making in the face of negative feedback about prior resource allocations, uncertainty surrounding the likelihood of goal attainment, and choice about whether to continue” (Keil et al., 2000: 632). Welsh and Ordonez (2014) found that high performance goals cause unethical behavior. A strong emphasis on goal attainment might indeed lead organizational members to engage in illegal acts (Kang and Thosuwanchot, 2017). When executives perceive high performance goals as invariable, personal desperation for goal achievement can result (Kuvaas et al., 2016: 401): Perceiving goals as invariable refers to the extent to which employees believe that the goals in a performance management system represent absolute standards that they must meet without exception, even if they think other factors are more important. In many organizations, ends justify means (Campbell and Göritz, 2014). If ends in terms of ambitions and goals are difficult to realize and achieve in legal ways, illegal means represent an alternative in many organizations (Jonnergård et al., 2010). Among most executives, it is an obvious necessity to achieve goals and objectives, while it is an obvious catastrophe to fail to achieve goals and objectives, sometimes because of rivalry (Dodge, 2009). To make as much profit as possible might be the only goal (Naylor, 2003). Goalsetting is often perceived in a positive light, meaning that ambitious goals increase performance (Locke and Latham, 2013). However, there is also evidence suggesting that high performance goals can lead to unethical behavior (Schweitzer et al., 2004; Simmons, 2018). Welsh et al. (2020) argued that this is not only because of rewards associated with goal attainment, but also because of changing moral reasoning processes related to the goal. As such, high goal commitment facilitates unethical behavior by increasing not only the motivation to achieve the goal but also the motivation to justify doing so by any means necessary (Locatelli et al., 2017). This is known as state moral disagreement, a process through which individuals justify unethical behavior (Moore, 2015) and disengage morally (Theoharakis et al., 2021). It is part of the dark side of ambitious goals. Proposition 1c. As commitment to ambitious business goals increases, financial crime will seem more convenient for a chief executive in a trusted position. The final convenience theme in the motive category is painful corporate economic threats. The threat of corporate collapse and bankruptcy might cause exploration and exploitation of illegal avenues to survive, where moral panic can occur (Chattopadhyay et al., 2001; Kang and Thosuwanchot, 2017). The survival of the corporation can become so important that no means come across as unacceptable in the current situation (Blickle et al., 2006). Sometimes, fraud and

126 Research Propositions corruption are considered temporary measures to recover from a crisis (Geest et al., 2017), where the measures will be terminated when the crisis is over. A crisis is a fundamental threat to the organization, which is often characterized by ambiguity of cause, effect, and means of resolution. Markets with crime forces can represent painful corporate economic threats. In many markets, there are cartels that regulate the supply side. A cartel is an implicit agreement between firms in the same industry to fix prices, to divide customers and markets among themselves, to fix industry outputs, to allocate territories, or to divide profits (Goncharov and Peter, 2019: 152): Cartel members seek to act collectively, as if they were a single monopolist, thereby maximizing the collective profit. By doing so, cartels violate competition policy and severely reduce consumer welfare through price-fixing activities that increase the price of goods far beyond the competitive level. Chattopadhyay et al. (2001) studied organizational actions in response to threats. They found that threats are associated with urgency, difficulty, and high stakes. Threats involve a negative situation in which loss is likely and over which one has relatively little control. Threats against organizational survival can create a personal motive for executives to commit financial crime (Crosina and Pratt, 2019). Threats are often noticed very late, both by individuals and by organizations. Handling threats thus becomes a matter of urgency. Individuals and firms “fail to detect threats and prevent calamities not because of an absence of signals or insufficient knowledge (or faulty awareness), but because attention bandwidth and information-processing fidelity are inherently limited” (Downing et al., 2019: 1890). Proposition 1d. As threats against the existence of the enterprise increase, financial crime will seem more convenient for a chief executive in a trusted position.

Opportunity Crime Themes In the perspective of crime as a choice, the status of the chief executive can make illegitimate actions relatively more convenient compared to legitimate actions. Status is an individual’s social rank within a formal or informal hierarchy, or a person’s relative standing along a valued social dimension (Kakkar et al., 2020). Status is the extent to which an individual is respected and admired by others, and status is the outcome of a subjective assessment process (McClean et al., 2018). Status differences lead to opportunity variations based on one actor’s acknowledgment that the other is entitled to certain privileges (Han et al., 2017). Highstatus individuals enjoy greater respect and deference from, as well as power and influence over, those who are positioned lower in the social hierarchy (Kakkar et al., 2020: 532): Status is a property that rests in the eyes of others and is conferred to individuals who are deemed to have a higher rank or social standing in a pecking

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order based on a mutually valued set of social attributes. Higher social status or rank grants its holder a host of tangible benefits in both professional and personal domains. For instance, high-status actors are sought by groups for advice, are paid higher, receive unsolicited help, and are credited disproportionately in joint tasks. In innumerable ways, our social ecosystem consistently rewards those with high status. In particular, individuals with high status based on prestige rather than dominance tend to be excused for whatever wrongdoing they commit. Individuals who attain and maintain high rank by behaving in ways that are assertive, controlling, and intimidating are characterized as dominant. Individuals who attain and maintain high rank by their set of skills, knowledge, expertise, and their willingness to share these with others are characterized as prestigious (Kakkar et al., 2020). Proposition 2a. Higher social status for a chief executive in a trusted position is associated with greater convenience of committing financial crime. A white-collar offender has typically legitimate access to resources to commit financial crime (Kempa, 2010; Huisman and Erp, 2013; Williams et al., 2019). A resource is an enabler applied and used to satisfy human and organizational needs. According to Petrocelli et al. (2003), access to resources equates access to power. Others are losers in the competition for resources (Wheelock et al., 2011). In the conflict perspective suggested by Petrocelli et al. (2003), the upper class in society exercises its power and controls the resources. White-collar offenders have legitimate access to premises (Benson and Simpson, 2018; Williams et al., 2019), and they have specialized access in routine activities (Cohen and Felson, 1979). In the role of an entrepreneur (Huang and Knight, 2017), the trusted offender might have even easier access to crime resources for illegal entrepreneurship (McElwee and Smith, 2015; Peixoto et al., 2021). High social status in privileged positions is sometimes associated with entrepreneurship, where an entrepreneurial individual can create opportunities for deviant behavior (Ramoglou and Tsang, 2016). The entrepreneurship perspective emphasizes that entrepreneurs discover and create innovative and entrepreneurial opportunities (Tonoyan et al., 2010; Welter et al., 2017). Criminal entrepreneurs actualize illegal opportunities in the shadow economy (McElwee and Smith, 2015). Scheaf and Wood (2021: 2) found that entrepreneurial fraud has stimulated a wide array of research related to whitecollar crime, where they provided the following definition of entrepreneurial fraud: Enterprising individuals (alone or in groups) deceiving stakeholders by sharing statements about their identity, individual capabilities, elements of new market offerings, and/or new venture activities that they know to be false in order to obtain something of value. Opportunity is any “potential course of action, made possible by a particular set of social conditions, which has been symbolically incorporated into an actor’s repertoire of behavioral possibilities” (Coleman, 1987: 409). Aguilera and Vadera

128 Research Propositions (2008: 434) described a criminal opportunity as “the presence of a favorable combination of circumstances that renders a possible course of action relevant”. An opportunity is attractive as a means of responding to desires, wishes, and ambitions. Committing financial crime might be convenient because of the offender’s status and legitimate access to resources. Proposition 2b. Increased ease of access to crime resources for a chief executive in a trusted position is associated with greater convenience of committing financial crime. As suggested by Berghoff and Spiekermann (2018: 290), sophisticated concealment is an important factor in white-collar crime: The privileged position of white-collar criminals is the result of several factors. Their offences are especially difficult to prosecute because the perpetrators use sophisticated means to conceal them. They can also often afford the best lawyers and have the political clout to influence the legislative process to their advantage and, if need be, to bribe prosecutors and judges. Additionally, the class bias of the courts works to their benefit. The law is often seen as not binding, at least not for and by economic elites. Crime concealment becomes more convenient when there is organizational decay in the form of institutional deterioration (Barton, 2004; Donk and Molloy, 2008). An institution is a system of interrelated formal and informal elements – rules, guidelines, norms, traditions, beliefs – governing relationships between institutional members within which members pursue their mutual interests (Gyõry, 2020). Institutional deterioration improves conditions of convenience for corruption and other forms of financial crime (Kostova et al., 2008; Pinto et al., 2008; Rodriguez et al., 2005). Institutional deterioration can occur conveniently, resulting from external legitimacy where deviance is the norm. An offender’s actions have a superficial appearance of legitimacy also internally, since both legal and illegal actions in the company occur in a manner characterized by disorganization (Benson and Simpson, 2018). Shadnam and Lawrence (2011: 379) applied the institutional perspective to explain moral decline and potential crime in organizations: Our theory of moral collapse has two main elements. First, we argue that morality in organizations is embedded in nested systems of individuals, organizations and moral communities in which ideology and regulation flow “down” from moral communities through organizations to individuals, and moral ideas and influence flow “upward” from individuals through organizations to moral communities. Second, we argue that moral collapse is associated with breakdowns in these flows and explore conditions under which such breakdowns are likely to occur. Conventional mechanisms of social control are weak and unable to regulate the behavior within the organization. Concealment of crime occurs conveniently by simply disappearing among other seemingly legitimate transactions.

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Proposition 2c. Organizational decay in the form of institutional deterioration is associated with greater convenience of concealing financial crime for a chief executive in a trusted position. Lack of overview and guardianship can create chaos that improves the convenient opportunity to conceal financial crime in the organizational setting for a white-collar offender. The agency perspective suggests that a principal is often unable to control an agent who does work for the principal. The agency perspective assumes narrow self-interest among both principals and agents. The interests of principal and agent tend to diverge, they may have different risk willingness or risk aversion, there is knowledge asymmetry between the two parties, and the principal has imperfect information about the agent’s contribution (Williams, 2008). In a chaotic situation, misreporting in accounting is often a convenient way of concealing illegal transactions (Qiu and Slezak, 2019). Lack of transparency makes concealment in accounting convenient (Goncharov and Peter, 2019). Managers can withhold bad news by accounting misrepresentation (Bao et al., 2019), since financial statements are a substantive component of a firm’s communications with its stakeholders (Gupta et al., 2020). Lack of oversight and guardianship becomes even worse when auditors slide over on the wrong side of the law. Mohliver (2019: 310) found that some auditors prioritize their clients’ interests over their legal obligation by recommending client malfeasance – for example, in terms of illegal stock-option backdating: The findings suggest that professional experts’ involvement in the diffusion of liminal practices is highly responsive to the institutional environment. Auditors are supposed to serve as gatekeepers to protect shareholders and report directly to shareholder representatives on the board of directors, but auditors become surprisingly often hired by corporate management to whom they are loyal (Hurley et al., 2019). Reporting fraud to public authorities will also harm auditors (Mohliver, 2019: 316): As organizations, audit firms are often severely penalized for client malfeasance. Yet the individual auditors working for these firms are susceptible to “motivated blindness” stemming from conflicts of interest that bias their moral judgment toward choices that help their clients. Mohliver (2019) found that auditor bias towards accepting deviant financial reports increased when there is ambiguity about the appropriateness of a course of action. Financial misreporting that is viewed favorably by the client organization can be recommended by external auditors on the grounds that such reporting is already adopted among companies served by the same auditing firm. Proposition 2d. Organizational chaos in the form of lacking overview and guardianship is associated with greater convenience of concealing financial crime for a chief executive in a trusted position.

130 Research Propositions While disorganized institutional deterioration causes decay, and lack of oversight and guardianship causes chaos, criminal market structures cause external collapse. Collapse of legitimacy is the final convenience theme in the opportunity category. Collapse might be caused by rule complexity preventing compliance (Lehman et al., 2020), participation in crime networks such as cartels (Nielsen, 2003), and financial crime as the usual way of doing business in markets with crime forces (Chang et al., 2005). Collapse represents a convenient situation for everybody ready to commit white-collar crime. Rule complexity can create a situation where nobody is able to tell whether an action represents a criminal offense. It is impossible to understand what is right and what is wrong. Some laws, rules, and regulations are so complex that compliance becomes random, where compliance refers to acting in accordance with laws, rules, and regulations. The regulatory legal environment is supposed to define the boundaries of appropriate organizational conduct. However, legal complexity is often so extreme that even specialist compliance officers struggle to understand what to recommend to business executives in the organizations (Lehman et al., 2020). Then regulatory inspection does not work for compliance (Braithwaite, 2020), especially when operating internationally and globally where states do not agree on what should be legal and illegal activities (Boghossian and Marques, 2019; Pontell et al., 2020). Eberlein (2019) argued that globalization opens markets for corporations but outstrips the capacity of states to regulate and enforce laws on cross-border business conduct for the public good. Similarly, Schneider and Scherer (2019: 1147) argued that “the extent to which state authorities can regulate the externalities and the behavior of multinational corporations is limited”, and that “gaps in governance abound in today’s globalized world”. There is an erosion of state power and a shift towards private regulation. Maher et al. (2019) found that governments not just in global business but also in local business are reluctant to intervene. They observed an ambiguity of the state to involve itself. A cartel is a typical criminal network involving chief executives from competing firms who have chosen to have their businesses cooperate illegally on the market. A cartel is an association of independent firms in the same industry that strive to reduce competition by agreeing on areas such as market sharing, pricing levels, and production quotas. A cartel is collective misconduct of firms (Bertrand and Lumineau, 2016: 983): “Instead of competing with one another, cartel members rely on each other’s agreed course of action.” Monopolies, cartels, and crime networks do not only represent threats in the motivational category of convenience (Chang et al., 2005; Geest et al., 2017). For deviant members of the elite, monopolies, cartels, and crime networks can represent attractive avenues for extra profits (Freiberg, 2020; Goncharov and Peter, 2019). Participation in criminal networks can be attractive (Nielsen, 2003), especially if criminogenic market symptoms cause markets with crime forces to be the usual way of doing business (Chang et al., 2005).

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Proposition 2e. Market collapse caused by rule complexity, cartels, crime networks, state reluctance to intervene, and other factors is associated with greater convenience of concealing financial crime for a chief executive in a trusted position.

Willingness Crime Themes A corporation can initially be blamed for a scandal, yet corporate accounts and the secrecy of offenders can make corporate crime seem less serious (Dewan and Jensen, 2020; Schoultz and Flyghed, 2016, 2019, 2020a, 2020b, 2021a, 2021b). Dewan and Jensen (2020) studied individuals of high social status in times of scandals that can change the role of status from being an asset to being a liability. They defined scandal as the disruptive publicity of misconduct – that is, a situation after detection and disclosure to the public. While the importance of status in convenience is related to prevention of blame before disclosure, Dewan and Jensen’s (2020: 1657) research was concerned with status after disclosure: Because scandal diminishes the effectiveness of factors that make status an asset, status offers less protection during a scandal. At the same time that scandal decreases the protective benefits of status, the factors that make status a liability remain or are augmented. As illustrated in Figure 4.1, the willingness for deviant behavior derives from choice and innocence. White-collar crime can be the result of a choice based on identity, rationality, and learning, and white-collar crime can be the result of innocence based on justification and neutralization. Personal willingness for deviant behavior implies a positive attitude towards violating social norms, including formally enacted laws, rules, and regulations (Aguilera et al., 2018). Personal willingness for deviant behavior increases as the gap between two antagonistic forces increases: the push of desires and the pull of self-regulation. Self-control failure arises because an executive experiences a potent and overwhelming desire that drives impulsive behaviors, while higher-level executive mental functioning is temporarily or permanently compromised and unable to override behaviors impelled by the desire. Self-control failure is a result of a desire that is too strong to stifle. Generally, self-control reflects an individual’s capacity and motivation to override desires and urges in order to act in accordance with one’s long-range goals (Liang et al., 2016): Effective human functioning requires the capacity to transcend primal desires and habitual behaviors in order to behave in a socially appropriate manner. When self-control fails, individuals disregard the long-term implications of their behaviors and succumb to their desires, such as eating fatty foods, cheating on a partner, or engaging in unethical behaviors. Ultimately, selfcontrol failure contributes to poor physical and mental health, crime, and lowquality interpersonal relationships.

132 Research Propositions Identity is the first convenience theme in the willingness category. Crime as a choice can be based on an identity that makes it acceptable for elite members to break the law (Petrocelli et al., 2003), a professional deviant identity (Obodaru, 2017), an identity of a narcissist expecting preferential treatment (Zvi and Elaad, 2018), deviant identity labeling (Mingus and Burchfield, 2012), reputation adaptation to individual labels (Bernburg et al., 2006), and narcissistic identification with the organization (Galvin et al., 2015). Narcissistic identification is a special type of narcissism, where the offender sees little or no difference between self and the corporation. Company money is personal money that can be spent in whatever way the narcissist prefers (Galvin et al., 2015). Identification with the organization is the process through which an individual’s identity becomes entangled with, and imprinted by, the corporation. The person’s unique sense of self comes to be understood in reference to that organization, where the organization defines individual self (Toubiana, 2020). Proposition 3a. A conveniently oriented chief executive in a trusted position with a stronger deviant identity has a higher level of willingness to get involved in financial crime. The rational choice assumption about offending is based on a normative foundation where advantages and disadvantages are subjectively compared (Müller, 2018). When there is no perceived likelihood of detection, then there is no deterrence effect to prevent offenses (Comey, 2009). If there is a certain perceived likelihood, then willingness might depend on the perceived consequences. For potential white-collar offenders, it can be frightening to think of time in jail or prison. Research has shown that some white-collar offenders suffer from special sensitivity in prison, while others have special resilience ability in prison (Logan, 2015; Logan et al. 2019; Long et al., 2021), which means that they cope better with incarceration than other inmates. Deterrence comes from whether or not an offender has to go to prison, rather than the severity of sanction in terms of imprisonment length. Generally, the severity of punishment has shown to have no effect on recidivism (Mears and Cochran, 2018). Rational choice is concerned with benefits of crime exceeding costs, where the perceived likelihood of incarceration is a cost element. Another cost element is media exposure, where investigative journalists often are the first to disclose suspected white-collar crime and the offender. Press reporters’ detection of misconduct and crime “represented an important ingredient of the nineteenthcentury newspaper” (Taylor, 2018: 346), and this is certainly also the case so far in the twenty-first-century media. The economic model of rational self-interest is all about weighing up the pros and cons of alternative courses of action. When the desire increases, then the benefits in the rational benefit–cost comparison increase, which in turn influences willingness. The rational choice perspective simply states that when benefits exceed costs, we would all do it. The perspective is explicitly a result of the self-regarding preference assumption, where rationality is restricted to self-interested materialism (Paternoster et al., 2018). Individuals and organizations are less likely to comply if

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they conclude that following laws, rules, and regulations is less profitable than violating those laws, rules, and regulations (Peeters et al., 2020). Proposition 3b. A conveniently oriented chief executive in a trusted position with a stronger rational mind where perceived benefits of crime exceed perceived costs has a higher level of willingness to get involved in financial crime. Learning from others by differential association was introduced by Sutherland (1983), who coined the term white-collar crime several decades earlier. The differential association perspective suggests that offenders associate with those who agree with them, and distance themselves from those who disagree. The choice of crime is thus caused by social learning from others with whom offenders associate. In an elite setting, interactions with deviant others promote criminal activity. The essence of differential association is that criminal behavior is learned, and the main part of learning comes from within important personal groups. Exposure to the attitudes of members of the organization that either favor or reject legal codes influences the attitudes of the individual. The individual will go on to commit crime if the person exposes himself or herself more to attitudes that favor law violation than to attitudes that favor abiding by the law. Learning from others is an active process. Differential association can occur in the organizational setting but does not as such increase the organizational opportunity to commit crime. Rather, differential association belongs to the behavioral willingness category of convenience, as crime learning makes it more convenient to favor law violation. Differential association by individuals can occur outside the organizational setting, such as exposure to law-violation attitudes early in life, exposure to law-violation attitudes over a prolonged period in different situations, and exposure to law-violation attitudes from people they like and respect. Once the appropriate attitudes have developed, young people learn the skills of criminality in much the same way as they would learn any other skill, which is by example and training (Wood and Alleyne, 2010). Individuals embedded within structural units by differential association become vulnerable to attitudes in favor of or opposed to delinquent and criminal behavior. Differential reinforcement of crime convenience develops over time as individuals become vulnerable to various associations and definitions conducive to delinquency. Proposition 3c. A conveniently oriented chief executive in a trusted position with a stronger differential association to deviant individuals has a higher level of willingness to get involved in financial crime. Justification of crime might refer to an offender claiming that the act of wrongdoing is morally justifiable or resulting from upper echelon biased information selection. Offenders may justify by negative life events that have occurred, by peer pressure (Gao and Zhang, 2019), or by disappointing work context that causes entitlement. In a justification, the actor admits responsibility for the act in question but denies its pejorative and negative content (Schoen et al., 2021: 730): People use justification mechanisms to protect their sense of self. People who sincerely believe that they are a specific kind of person but routinely

134 Research Propositions demonstrate behaviors that indicate otherwise may avoid cognitive dissonance and maintain their sense of self by using justification mechanisms that allow them to “explain away” their behavior. The offender might claim that the offense belongs to a larger picture in a comprehensive context, where the crime is an illegal element among many legal elements to ensure an important result. The offense was a required and necessary means to achieve an important goal. For example, a bribe represents nothing in dollar value compared to the potential income from a large contract abroad. Alternatively, a temporary misrepresentation of accounts could help save the company and thousands of jobs. Proposition 3d. A conveniently oriented chief executive in a trusted position with a stronger ability to justify wrongdoing has a higher level of willingness to get involved in financial crime. The personal willingness is concerned with the impression that surprisingly few white-collar criminals think they have done anything wrong. Most of them feel innocent and victims of injustice when indicted, prosecuted, convicted, and imprisoned. By application of neutralization techniques, they deny responsibility, injury, and victim. They condemn the condemners. They claim appeal to higher loyalties and normality of action. They claim entitlement, and they argue the case of legal mistake. They find their own mistakes acceptable. They argue a dilemma arose, whereby they made a reasonable trade-off before committing the act (Jordanoska, 2018; Kaptein and Helvoort, 2019). Such claims enable offenders to find crime convenient, since they do not consider it crime, and they do not feel guilty of wrongdoing (Cullen et al., 2020). Proposition 3e. A conveniently oriented chief executive in a trusted position with a stronger ability to deny guilt has a higher level of willingness to get involved in financial crime. In conclusion, trusted chief executives in convenient white-collar crime is an issue that has received increased attention in recent years, both in terms of occupational crime where the offender achieves personal financial gain and in terms of corporate crime where the offender’s institution achieves organizational financial gain. One of the topics discussed is the seriousness of wrongdoing by chief executives. At the lower end of seriousness, Alcadipani and Medeiros (2020) found that white-collar crime tends to be perceived as and treated as corporate irresponsibility and not as misconduct, wrongdoing, offending, or law violation.

Bibliography Aguilera, R.V. and Vadera, A.K. (2008). The dark side of authority: Antecedents, mechanisms, and outcomes of organizational corruption, Journal of Business Ethics, 77, 431–449. Aguilera, R.V., Judge, W.Q. and Terjesen, S.A. (2018). Corporate governance deviance, Academy of Management Review, 43 (1), 87–109.

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11 Industry Effects

It is an interesting research issue whether competitors lose or gain when an industry peer is hit by a scandal such as white-collar and corporate crime by chief executive offenders. Traditionally, it is assumed that the negative stigma effect is more common among others in the same industry rather than the positive competition effect where non-accused firms gain from the accused firm’s loss. Recent research has suggested a U-shaped relationship where increasing product market overlap first causes a stigma effect and then causes a competition effect. Based on seven cases from seven different countries, this chapter suggests that the U-shape might be influenced by the local extent of white-collar and corporate crime. Specifically, this chapter suggests the following hypothesis for future research: The product market overlap between a nonaccused firm and an accused industry peer will exhibit a U-shaped effect on the non-accused firm’s market depending on the extent of product market overlap, where the negative stigma effect will be stronger in countries characterized by more corruption and other forms of white-collar and corporate crime, while the positive competition effect will be stronger in countries characterized by less corruption and other forms of white-collar and corporate crime. When Telia in Sweden was hit by a corporate scandal (Schoultz and Flyghed, 2021a, 2021b), did the local telecommunication industry suffer? When Danske Bank in Denmark was hit by several scandals (Bruun Hjejle, 2018; Plesner, 2020), did the local banking sector suffer? When Volkswagen in Germany was hit by a scandal (Jung and Sharon, 2019), did the local automobile industry suffer? When Wirecard in Germany was hit by a scandal (Storbeck, 2021a), did the local finance sector suffer? This list might be much longer, but the point should be obvious: Does an industry and thus competitors suffer negative consequences when an industry peer is hit by a scandal? Or does suspected wrongdoing by an industry peer represent a competitive advantage for others in the local industry? Traditionally, as argued by Naumovska and Lavie (2021: 1130), “research on misconduct suggests that accusations against industry peers generate negative consequences for non-accused firms”. Researchers have thus suggested a stigma effect that generates a negative spillover, whereby other companies in the accused company’s industry suffer market loss following the accusation. Naumovska and Lavie (2021: 1131) introduced a counterargument, “predicting a positive spillover to non-accused firms following an accusation against their DOI: 10.4324/9781003302254-11

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industry peer”. Alleged wrongdoing ascribed to a competitor can improve the competitive position of competing corporations in the same industry. Nonaccused corporations can benefit from the revelation of financial misconduct by an industry peer. Major customers might not only consider but actually carry out a switch of their business to other companies. Then one firm’s loss is its competitor’s gain. Naumovska and Lavie (2021: 1134) theorized the stigma effect versus the competition effect by suggesting that “a non-accused firm that exhibits greater product market overlap with an accused peer will be perceived as more similar to it and thus more likely than other firms to be assigned to the same industry category as the accused peer”. Their research first suggested a growing negative spillover to non-accused firms at increasing product market overlap. Then they change their suggestion to a U-shaped relationship (Naumovska and Lavie, 2021: 1137): The product market overlap between a non-accused firm and an accused industry peer will exhibit a U-shaped effect on the non-accused firm’s stock market valuation, with the expected stock market valuation first becoming more negative as the product market overlap increases and then becoming more positive with further increases in product market overlap. This chapter is concerned with the empirical side of the stigma effect versus the competition effect. Corporate scandals are frequently investigated by fraud examiners, and this chapter reviews a convenience sample of investigation reports to identify relevant effects. In our perspective of corporate crime consequences, the presented research is exploratory to review whether one firm’s loss is its competitor’s loss or gain.

Corporate Crisis and Scandals Scandals are disruptive publicity of misconduct (Dewan and Jensen, 2020) and publicized instances of transgression that run counter to social norms (Hearit, 2006; Whyte, 2014). Scandals typically result in condemnation and discredit and other consequences such as bad press, disengagement of key constituencies, the severance of network ties, and decrease in performance (Piazza and Jourdan, 2018). A scandal can be an act of elite deviance that might include financial, physical, and morally harmful behavior committed by privileged members in society. A crisis from scandals can be a fundamental threat to the organization, characterized by particular ambiguity of cause, effect, and means of resolution (Bundy and Pfarrer, 2015; König et al., 2020). A crisis is an unexpected, publicly known, and harmful event that is associated with uncertainty. Most corporate crises originate from failures within the organization. Scholars denote that organizational crises require timely responses (König et al., 2020). When the Siemens corruption scandal emerged in the public, top management attempted to blame lower-level managers (Berghoff, 2018: 423):

144 Industry Effects At first the company defended itself with set phrases like “mishaps of individuals” and isolated offenses committed by a “gang” of criminals, or “This is not Siemens”. According to Greer and McLaughlin (2017), existing research indicates that scandals can have a corrosive impact on the reputational standing, credibility, and legitimacy of organizations. Scandals thus represent crises for involved organizations, executives, and offenders. Benson (2019) argues that corporate responses to criminal allegations usually involve attempts to either deny any wrongdoing, or employ neutralizations as a way to explain their activities: Typically, it is the officers and directors of the firm who attempt to justify the corporation’s actions to the public, the media, their shareholders, and if necessary, even before the court. These exercises in corporate self-defense are aimed at protecting the corporation’s image and legitimacy and belong to a broader category of offender neutralizations and denials. Furthermore, these corporate neutralizations and denials of harm and wrongdoing can be allowed and aided by state actors, for example, through allowing a firm to pay a hefty fine, yet admits to no wrongdoing or through enabling/allowing corporate harm via de-regulation. As argued by Kim et al. (2009), traditional approaches to trust repair by the corporation that has lost trust include apologies, denials, promises, excuses, reparations, legalistic remedies, and no response at all. However, as argued by Bundy and Pfarrer (2015), the effectiveness of such accounts depends on the match or mismatch between situational attribution of trust-reducing incidents and the chosen trust-repair message. An account is a form of speech for explanations of negative events that the corporation wants to communicate. An account is a statement made to explain unanticipated or untoward behavior (Scott and Lyman, 1968). Situational attribution of responsibility is assigned to the trustee by the trustor. When situational attribution is low, then the corporate response might be more defensive. When the situational attribution is high, then the corporate response might be more accommodative. While a defensive response accepts no or little responsibility for an incident, an accommodative response acknowledges the corporation’s causal role in the incident. Denials and excuses are examples of defensive responses, while apologies and promises are examples of accommodative responses. A scapegoat is a person who is blamed for the wrongdoings, mistakes, or faults of others – in this case, the wrongdoings of top management. By scapegoating, the responsibility for the act or event is transferred from the corporation to one or a few public figures, such as dismissed senior company executives or lowerlevel managers. Astellas applied the procedure of scapegoating (Mulinari et al., 2021: 75):

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According to Astellas Europe, “the email indicated that there was a conscious decision by one individual” […], but that “as an organization” Astellas had been completely unaware of the email up until this point. Hence, the company submitted there “was no dishonesty or deliberate attempt to mislead” – except by this single rogue employee. Astellas Europe also stated that, “immediate action had been taken to address the conduct of this senior member of staff”. Gottschalk and Benson (2020) extended research on how corporations respond to scandals by examining the evolution of the accounts that are developed by corporate agents after a scandal becomes public. Guided by the theory of accounts and a developed perspective on crisis management, they examined how the accounts developed by 12 corporations caught up in highly publicized scandals changed from the time of initial exposure to the issuance of an investigation report. Their analysis shows that denial of wrongdoing in several cases is replaced by admission of wrongdoing and scapegoating, while obfuscation of wrongdoing is replaced by denial or acceptance of responsibility and scapegoating.

Stigma and Competition Effects Naumovska and Lavie (2021) studied stigma effects versus competition effects on non-accused firms when an industry peer is accused of financial misconduct. Stigma effects refer to negative consequences for non-accused firms from accusations against industry peers. Competition effects refer to benefits for non-accused firms that compete with these peers. The research analyzed investors’ shareholdings and stock market returns of non-accused firms in the United States. A reduced stock market valuation indicates stigma effects, while an increased stock market valuation indicates competition effects. Naumovska and Lavie (2021: 1159) thus distinguished between “stigma by association” versus “gain by misfortune”: An industry peer’s financial misconduct can generate either positive or negative spillovers to non-accused firms. Understanding these spillovers calls attention to the underlying mechanisms. Our theory discerns two mechanisms: the stigma effect, which generates negative spillover, and the competition effect, which yields positive spillover. Prior research has mostly underscored the stigma effect, paying almost no attention to the competition effect. Our study is the first to simultaneously consider the stigma and competition effects ascribed by financial misconduct within an industry, and thus it sheds new light on the relative prevalence of these conflicting effects and the resulting net spillover that they generate to non-accused firms […] On average, investors negatively assess non-accused firms in the accused peer’s industry, suggesting that the stigma effect dominates the competition effect. Yet we find that the net effect of stigma versus competition varies

146 Industry Effects depending on the market overlap between each non-accused firm and its accused peer. The negative spillover increases with product market overlap, but beyond a certain level it gives way to positive spillover attributed to the intensifying competition effect. The study found that the accused peer’s closest competitors will mainly benefit from the competition effect and suffer less from the stigma effect. The accused peer’s customers will switch to other firms in the same market that offer comparable products. It is a matter of substitution, where a non-accused firm can substitute an accused firm’s products. The non-accused firm has an opportunity to capitalize on the market lost by its direct competitor following accusations against that industry peer (Naumovska and Lavie, 2021: 1135): The greater the market overlap between the non-accused firm and its peer, the stronger the competition effect that creates positive spillover to firms that can enhance their competitive position vis-à-vis that peer. The extent of product market overlap was defined in the study in terms of both factual and perceived overlap. The study suggested a U-shaped relationship between stock market valuation and product market overlap: A low product market overlap reduces stock market valuation, while a high product market overlap increases stock market valuation.

Internal Fraud Examiners Fraud examiners from law firms and accounting firms are typically hired by private and public organizations to investigate suspicions of white-collar and corporate crime (King, 2020a, 2020b, 2021; Meerts, 2020). At the end of their inquiry, a report is produced and given to the client organization as their property. Unfortunately for researchers, most clients keep reports secret (Gottschalk and TcherniBuzzeo, 2017). Only a few reports are publicly available, and they are often hard to find. Via internet searches, we were able to identify and retrieve a small sample of seven reports from seven different countries written in English. Each report was evidence of a corporate scandal. Media coverage of each scandal indicated whether others in the same industry had suffered or gained from the scandal of the industry peer. Via internet searches and specific searches in newspapers such as the Financial Times, it was possible to find evidence of both stigma effects and competition effects of the various scandals.

Non-Accused Organizations The sample of investigation reports by fraud examiners is listed in Table 11.1. The first entry is concerned with the Danish bank Danske Bank which had money-laundering issues (Bruun Hjejle, 2018). The Danish newspaper Berlingske reported that Danske Bank lost thousands of customers in the aftermath of the money-laundering scandal in

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Table 11.1 Investigation reports by fraud examiners Accused Firm

Market Overlap

Non-Accused Firms

Danske Bank (Bruun Hjejle, 2018) in Denmark

Strong product market overlap with other banks

Competition effect of bank customers leaving Danske Bank in protest out of lack of trust (Olsen, 2019)

Hurtigruten Cruises (Wiersholm, 2020) in Norway

Weak product market overlap with other cruise lines

Stigma effect by avoiding cruise ships in general (CDC, 2021)

Mercy Corps (Adam Smith International, 2020) in Congo

Strong product market overlap with other aid organizations

Stigma effect as people lose faith and trust in humanitarian work (Larsen, 2021)

Swedbank (Clifford Chance, 2020) in Sweden

Strong product market overlap with other banks

Competition effect of bank customers leaving Swedbank in protest out of lack of trust (Asplid, 2019)

Unibank (Kroll, 2017) in Moldova

Strong product market overlap with other banks

Stigma effect by avoiding investments in Moldovan banks (Buckley, 2018)

Wells Fargo (Shearman Sterling, 2017) community bank in the United States

Strong product market overlap with other banks

Competition effect of bank customers leaving Wells Fargo (Gray, 2016)

Wirecard (KPMG, 2020a, 2020b) banking in Germany

Strong product market overlap with other banks

Competition effect from Wirecard collapse that made customers switch bank (Nestler, 2020)

Estonia (Olsen, 2019). There was a competition effect, since the customers left Danske Bank for other Danish banks that had the same and similar products. There is a strong market overlap with other banks that caused a competition effect of bank customers leaving Danske Bank in protest out of lack of trust. The second entry is concerned with the Norwegian cruise line Hurtigruten Cruises. In the aftermath of the Covid-19 outbreak on a cruise ship operated by Hurtigruten (Wiersholm, 2020), cruise ship travel during Covid-19 received increased attention (CDC, 2021): The chance of getting Covid-19 on cruise ships is high because the virus spreads easily between people in close quarters aboard ships. Thus, a stigma effect occurred where all cruise lines suffered from the detected threat of virus outbreak aboard Hurtigruten ships as well as other cruise lines (Rose and Street, 2021). The third entry is concerned with the charity Mercy Corps. The international non-government organization (NGO) experienced a scam in the Democratic Republic of Congo (DRC). The scam involved corrupt aid workers, business owners, and community leaders (Kleinfeld, 2020):

148 Industry Effects Together they zeroed in on the humanitarian sector’s flagship rapid response programs – the main mechanism for helping displaced people in Congo, where hundreds of millions of dollars of foreign aid are spent every year. Some $636,000 was lost by Mercy Corps and partners in just a few months. It was estimated that the charity had lost $6 million in about two years. Kleinfeld (2020) describes the modus operandi in some of the wrongdoing: When a conflict or natural disaster occurred, aid groups would receive reports from local community leaders that exaggerated the number of people who had fled their homes. Businesspeople would then pay kickbacks to corrupt aid workers to register hundreds of additional people for cash support who were not actually displaced. The merchants would then receive the aid payments and share with the local leaders. Of the nineteen Mercy Corps aid workers alleged to be involved in the scam, some were using the extra cash to buy new cars, Armani glasses, and iPhones, according to several of their colleagues who spoke to TNH [The New Humanitarian]. One even started building a hotel, colleagues said. The investigation by Adam Smith International (2020) strengthened people’s skepticism towards foreign aid. Skeptics believe that most of the money never arrives at its destinations. Instead, foreign aid money ends up in the pockets of over-administered aid organizations as well as in the pockets of corrupt local businesspeople. There was thus a stigma effect, not only harming Mercy Corps but other organizations in the same industry such as the Red Cross. People lose faith and trust in humanitarian work (Larsen, 2021). Swedbank in Sweden is one of four banks in the table. Similar to Danske Bank in Denmark, Swedbank ignored money-laundering issues in their Eastern European operations. Swedbank carried out bank transactions of more than 37 billion Euros (about US $40 billion) with a high risk for money laundering over a fiveyear period according to private policing in terms of an internal investigation by fraud examiners from law firm Clifford Chance (2020). The investigation report suggests that the Swedish bank actively targeted high-risk individuals in the Baltic region and points to failings from both top management and the board (Milne, 2020). Birgitte Bonnesen was the CEO at Swedbank. She had to leave the position in 2019 (Makortoff, 2019). When Clifford Chance (2020) presented their report of investigation, the new Swedbank board decided to withdraw her final compensation of 26 million Swedish kroner (US $2.7 million). At the same time, Swedbank accepted a fine of 4 billion Swedish kroner (US $408 million) from the Swedish finance inspection (Johannessen and Christensen, 2020). Similar to Danske Bank in Denmark, customers switched banks, so there was a competition effect in Sweden (Asplid, 2019). In January 2022, the Swedish economic crime authority decided to charge Bonnesen for fraud (Rana, 2022). The fifth entry is also concerned with a bank scandal in Moldova that might be compared to the bank scandals in Denmark and Sweden. However, as indicated in the table, there was a stigma effect rather than a competition effect in the

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Moldovan case (Buckley, 2018). People not only lost trust in the involved bank, Unibank, but they also lost trust in the banking sector in Moldova. One reason was that a few more banks were involved in the scandal with Unibank (Kroll, 2017). Another reason was that the National Bank of Moldova seemed to lack control with local banks. The New York Times reported in October 2015 that Moldova “was rocked this year by the discovery that $1 billion had fraudulently siphoned from Moldova’s banking system over a period of years, a huge amount for an impoverished country whose entire economic output is only about $8 billion a year” (Nechepurenko, 2015). The Financial Times reported in January 2016, that “until the fraud came to light last year, Moldova was considered a rare success in the EU’s campaign to build bridges to post-Soviet states” (Seddon, 2016). Regarding the sixth entry in Table 11.1, Shichor and Heeren (2021: 99) described concerted ignorance at Wells Fargo in the United States: Management expectations of making profits through lower level employees, without being interested in how the results are achieved, can be characterized as “concerted ignorance” which is a general way of covering up when open discussion of certain practices or policies would threaten the solidarity and cohesion in an organization. Shichor and Heeren (2021) found that concerted ignorance was created by an organizational emphasis on decentralization. Concerted ignorance was promoted by the common interest of limiting the knowledge each member of the organization obtains about other members of the organization. After the investigation of the scandal by Shearman Sterling (2017), a competition effect of bank customers leaving Wells Fargo occurred (Gray, 2016). The final entry in Table 11.1 is concerned with Wirecard in Germany. Chancellor Angela Merkel in Germany had to explain herself with regard to helping Wirecard, which was accused of a billion-dollar fraud. The creditors of Wirecard were left with a loss of three billion Euros. Merkel had to explain how she could vouch for the bankrupt company (Kagge, 2021). The payment company Wirecard, which was hailed as one of Germany’s rare technology successes, collapsed into insolvency in the summer of 2020 after revealing that two billion Euros in cash did not exist (Storbeck, 2021a, 2021b; Storbeck and Morris, 2021). A few months before the collapse, fraud examiners from KPMG (2020a, 2020b) conducted an internal investigation at Wirecard where Markus Braun was the chief executive officer. After the collapse, a competition effect occurred (Nestler, 2020). A seventh example of the competition versus stigma effect based on fraud investigation reports, in addition to those listed in Table 11.1, might be corruption in sports. As suggested by Stathopoulou et al. (2021: 2), there is some evidence from secondary panel data that spectators’ attendance at punished football clubs was lower than it was at unpunished clubs, resulting in large revenue losses for the punished clubs:

150 Industry Effects These studies indicate that scandals and corruption can have detrimental effects on spectator demand. They also invite the opportunity for further investigation into how corrupt practices are perceived by sports fans and affect fans’ attitudes and ethical considerations in such a way as to impact sports operations not only at a local level but also at a national level. The evidence shows neither a clear stigma effect in terms of lower attendance at football games in general nor a clear competition effect where unpunished clubs should experience extraordinary growth in spectator numbers. However, the interest in elite sports in general, such as the FIFA World Cup in both Russia in 2018 and in Qatar in 2022, might indeed suffer from scandals of corruption as well as sublevel working conditions for arena builders. The investigation report by Garcia (2014) revealed corruption at the assignment of the World Cup to both Russia and Qatar. The concept of market overlap is an interesting issue here, as spectators might be loyal to a specific football club, and spectators might favor certain athletic activities in favor of other activities. When allegations of corruption against the president of the International Biathlon Union (IBU) in Austria emerged, the investigation report by the External Review Commission (2014) documented some evidence of corruption. Nevertheless, there was no stigma effect towards the interest in biathlon events nor any competition effects for alternative winter sports events.

Transparency Corruption Index According to Naumovska and Lavie (2021), the stigma versus the competition effect on non-accused firms when an industry peer is accused of financial misconduct is dependent on the product market overlap between the non-accused firm and its accused peer. They suggested that the negative stigma effect will be more severe with greater extent of market overlap up to a point. Beyond that point, the competition effect will be stronger than the stigma effect, thus causing a U-shaped relationship between the market valuation of a non-accused firm and the product market overlap with the accused firm. Their research found support for this U-shaped prediction in the US software industry based on investors’ shareholdings and stock market returns of non-accused firms. We applied the same kind of theorizing to our convenience sample of seven accused organizations in seven different countries. Six out of seven cases are characterized by strong product market overlap. Five out of those six are consistent with the competition effect. One case seems to have a better fit with the stigma effect as banks in Moldova generally lost trust because of the fraud at Unibank. A potential explanation might be the greater extent of white-collar and corporate crime generally in Moldova as evidenced by that country’s rank on the corruption index by Transparency International. While Moldova ranks 115, Denmark ranks 1, Norway ranks 7, Congo ranks 165 (and the Democratic Republic of Congo ranks 180), Sweden ranks 3, United States of America ranks 25, and Germany ranks 9. We return below to the low rank of Congo. The interesting

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deviation by Moldova might both be caused by the fact that more than one bank in the country was involved in the scandal, and that Moldova is considered a corrupt country based on the corruption perceptions index. While investors in Denmark, Sweden, and Germany switched financial institution away from Danske Bank, Swedbank, and Wirecard to non-accused banks locally, it seems that investors left all banks in Moldova. The only case characterized by relatively weak product market overlap is cruise lines. We argue that Hurtigruten Cruises is different from other cruise lines in terms of the adventure offered. While other cruise lines may operate in holiday waters of warm weather, cosmopolitan cities, and paradise islands, Hurtigruten Cruises operates in exploratory waters in the north to see polar bears, reindeer, and whales in cold waters. Even among other cruise lines, there might be weak product market overlap as indicated by their pricing strategies, where some trips are inexpensive with low standards, while others are exotic with extreme luxury and priced accordingly. Thus, the low product market overlap in the cruise industry might explain the stigma effect being stronger than the competition effect. The final case of Congo is concerned with strong product market overlap among non-government organizations in the business of foreign aid. We suggest a strong product market overlap as both private donors and governments do not necessarily distinguish between various aid organizations. For example, in Norway, it seems to be quite random whether you financially support Norwegian Red Cross, Norwegian People’s Aid, Norwegian Refugee Council, Strømme Foundation, Care Norway, or any other of the numerous aid organizations. Strong product market overlap should, according to Naumovska and Lavie (2021), result in a competition effect stronger than the stigma effect. However, it seems that donors lose faith in the efficiency and effectiveness of aid organizations when one aid organization, such as Mercy Corps, is hit by a scandal. A potential reason is the extent of white-collar crime and corporate crime already present in countries that receive foreign aid. Development aid funds might seem to disappear within bureaucratic and inefficient NGOs as well as corrupt local destinations. Based on the small and convenient sample of countries in this study, we suggest an extension of the theoretical perspective by Naumovska and Lavie (2021), where the local situation is taken into account. Specifically, based on our conclusion regarding Moldova and Congo, we suggest that non-accused firms will suffer from a stigma effect rather than a competition effect to a greater extent in countries characterized by high levels of white-collar and corporate crime. Formulated as a research hypothesis for future research, we suggest the following angle: The product market overlap between a non-accused firm and an accused industry peer will exhibit a U-shaped effect on the non-accused firm’s market depending on the extent of product market overlap, where the negative stigma effect will be stronger in countries characterized by more corruption and other forms of white-collar and corporate crime, while the positive competition effect will be stronger in countries characterized by less corruption and other forms of white-collar and corporate crime.

152 Industry Effects In conclusion, based on recent research regarding whether competitors lose or gain when an industry peer is hit by a scandal, this chapter has contributed to an extension of previous theorizing. While the relationship between the extent of product market overlap and stigma versus competition effects is supported, anecdotal evidence suggests that the stigma effect will be stronger and more persistent in nations with more corruption and other forms of white-collar and corporate crime. Based on exploratory research in this chapter, the following hypothesis is formulated for future research: The product market overlap between a nonaccused firm and an accused industry peer will exhibit a U-shaped effect on the non-accused firm’s market depending on the extent of product market overlap, where the negative stigma effect will be stronger in countries characterized by more corruption and other forms of white-collar and corporate crime, while the positive competition effect will be stronger in countries characterized by less corruption and other forms of white-collar and corporate crime.

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154 Industry Effects Larsen, O.J. (2021). Tidligere bistandstopp: -Bistand virker ikke (Former aid executive: -Aid does not work), Norwegian broadcasting corporation NRK, www.nrk.no, published December 13. Makortoff, K. (2019). Swedbank chief sacked amid money laundering scandal, The Guardian, www.theguardian.com, published March 28. Meerts, C. (2020). Corporate investigations: Beyond notions of public-private relations, Journal of Contemporary Criminal Justice, 36 (1), 86–100. Milne, R. (2020). Swedbank failings on E37bn of transactions revealed in report, Financial Times, www.ft.com, published March 23. Mulinari, S., Davis, C. and Ozieranski, P. (2021). Failure of responsive regulation? Pharmaceutical marketing, corporate impression management and off-label promotion of enzalutamide in Europe, Journal of White Collar and Corporate Crime, 2 (2), 69–80. Naumovska, I. and Lavie, D. (2021). When an industry peer is accused of financial misconduct: Stigma versus competition effects on non-accused firms, Administrative Science Quarterly, 66 (4), 1130–1172. Nechepurenko, I. (2015). Moldova parliament dismisses government amid bank scandal, The New York Times, www.nytimes.com, published October 29. Nestler, F. (2020). Kunden auf der Flucht (Customers on the run), daily German newspaper Frankfurter Allgemeine Zeitung, www.faz.net, published June 24. Olsen, S.M. (2019). Danske Bank mister tusindvis af kunder – men topchef venter prop i flugten (Danske Bank loses thousands of customers – but the top manager is expecting a plug in the outlet), daily Danish newspaper Berlingske, www.berlingske.dk, published April 30. Piazza, A. and Jourdan, J. (2018). When the dust settles: The consequences of scandals for organizational competition, Academy of Management Journal, 61 (1), 165–190. Plesner. (2020). Response to DFSA-letter: Anmodning om redegørelse om Danske Bank A/S’ gældsinddrivelsessystem (Response to DFSA letter: Request for account concerning Danske Bank Inc.’s debt collection system), investigation report by Danske Bank, law firm Plesner, Copenhagen, Denmark, 120 pages. Rana, A. (2022). Swedbanks tidligere konsernsjef Birgitte Bonnesen er tiltalt for grovt bedrageri (Former Swedbank chief executive Birgitte Bonnesen is charged with serious fraud), daily Norwegian business newspaper Dagens Næringsliv, www.dn.no, published January 4. Rose, A. and Street, F. (2021). 48 test positive for Covid on world’s biggest cruise ship, CNN, www.cnn.com, published December 21. Schoultz, I. and Flyghed, J. (2021a). “We have been thrown under the bus”: Corporate versus individual defense mechanisms against transnational corporate bribery charges, Journal of White Collar and Corporate Crime, 2 (1), 24–35. Schoultz, I. and Flyghed, J. (2021b). Performing unbelonging in court: Observations from a transnational corporate bribery trial – A dramaturgical approach, Crime, Law and Social Change, published online, doi:doi:10.1007/s10611-021-09990-x. Scott, M.B. and Lyman, S.M. (1968). Accounts, American Sociological Review, 33 (1), 46–62. Seddon, M. (2016). Outrage over Moldova bank scandal threatens reforms, Financial Times, www.ft.com, published January 26. Shearman Sterling (2017). Independent Directors of the Board of Wells Fargo & Company: Sales Practices Investigation Report, law firm Shearman Sterling, New York, NY, 113 pages. Shichor, D. and Heeren, J.W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga, Journal of White Collar and Corporate Crime, 2 (2), 97–108.

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Stathopoulou, A., Quansah, T.K. and Balabanis, G. (2021). The blinding effects of team identification on sports corruption: Cross-cultural evidence from Sub-Saharan African countries, Journal of Business Ethics, published online, doi:10.1007/s10551-021-04822-3. Storbeck, O. (2021a). Prosecutors delayed arrest warrant for Wirecard’s Jan Marsalek, Financial Times, www.ft.com, published January 29. Storbeck, O. (2021b). German parliament expands probe into EY’s audits of Wirecard, Financial Times, www.ft.com, published April 22. Storbeck, O. and Morris, S. (2021). BaFin files insider trading complaint against Deutsche Bank board member, Financial Times, www.ft.com, published April 19. Whyte, D. (2014). Regimes of permission and state-corporate crime, State Crime Journal, 3 (2), 237–246. Wiersholm. (2020). Granskingsrapport: Utbrudd av covid-19 på Hurtigruten-skipet MS Roald Amundsen 17.-31. juli 2020 (Investigation report: Outbreak of covid-19 on Hurtigruten ship MS Roald Amundsen July 17–31, 2020), law firm Wiersholm, Oslo, Norway, 51 pages.

Conclusion

To reduce the frequency of white-collar crime by trusted chief executives, there is a need to change both organizational structure and organizational culture. The typical structure today is that the CEO is the only person at level 1 in the organizational hierarchy, where the person reports to a board that suffers from principal–agent problems. Maybe a future solution is to replace the large board of parttime directors with a small board of full-time directors. The typical culture today is to trust the CEO whatever that person does or does not do. Control and critical questions are considered signs of mistrust in many cultures. The four-eye principle should apply just as much at the top as further down in the organization. What the chief executive does should be just as transparent as what everyone else does in the organization. While it is important to detect, investigate, prosecute, convict, and incarcerate chief executives who can be identified as personally responsible for occupational as well as corporate crime, a democratic society requires that it should only happen if the responsibility is beyond any reasonable doubt. A person should be considered innocent until guilt is eventually proven by solid evidence that can convince the judge. Otherwise, the investigation should be stopped, the prosecution should be avoided, and the defendant should be dismissed by the court. It happens from time to time that innocent chief executives are exposed in the media for wrongdoing, investigated by the police, prosecuted, and convicted. When appealed from a district court to a higher court, some defendants are found not guilty. The question becomes what a democratic state has to do to repair the damage caused to an innocent person. It seems that most nations have a system of financial compensation where the money amount varies between jurisdictions. In Norway, chief executives who were found not guilty are able to document heavy financial losses as they moved from well-paid top positions to almost nothing from the social security agency. The losses accumulate as investigation and prosecution often last for almost a decade before cases are finally closed. When suing the state afterwards, the justice department tends to refuse the claims so that the compensation issues end up in court. While former CEOs in Norway sometimes ask for the equivalent of tens of millions of US dollars, the typical financial compensation after court hearings amounts to the equivalent of one or two million dollars (Klevstrand, 2020; Kolsrud, 2020; NTB, 2020). DOI: 10.4324/9781003302254-12

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Bibliography Klevstrand, A. (2020). Jo Lunder fikk null kroner i erstatning – nå går den tidligere Vimpelcomtoppen til søksmål mot staten (Jo Lunder received zero kroner in compensation – Now the former Vimpelcom top is suing the state), daily Norwegian business newspaper Dagens Næringsliv, www.dn.no, published November 11. Kolsrud, K. (2020). Brask får 35 millioner i Transocean-erstatning (Brask receives 35 million in Transocean compensation), web-based justice magazine Rett24, www.rett24.no, published February 4. NTB (2020). Tidligere Yara-sjef Thorleif Enger krevde 16 millioner i erstatning – fikk ikke medhold i tingretten (Former Yara boss Thorleif Enger demanded 16 million in compensation – was not upheld in the district court), Norwegian daily newspaper Aftenposten, www.aftenposten.no, published May 4.

Index

accountability 25–7, 28–9 accounting fraud/misreporting 48, 60, 61, 79–80, 98; and auditors 106–7, 129 agency theory see principal–agent theory aggressive humor 81 Aguilera, R. V. and Vadera, A. K. 118, 127–8 Alalehto, T. 43–4 Alcadipani, R. and Medeiros, C. R. O. 42, 43 Alcantor, Germany 86 altruism 101 Apistola, M. and Gottschalk, P. 2 Arthur Andersen (consulting firm), US 48 Asea Brown Boveri (ABB) 118–19 Astrellas Europe 144–5 attention bandwidth 22, 59, 126 attribution/blame: misleading 108–9; privileged position status 77–8; scapegoating 59, 144–5; situational 144 auditors 106–7, 129 Baer, M. D. et al. 1, 2, 3–4, 5, 23 bankruptcy: Lehman Brothers 78; threat of 58, 125–6 Barnevik, P. 118–19 behavior and role of CEOs 27–30 Benson, M. L. 144; et al. 83; and Gottschalk, P. 77 Benulic, B. 30, 79–80 Berghoff, H. 82, 108, 109, 116, 143–4; and Spiekermann, U. 41, 88, 89, 94, 128 Bertrand, O. and Limineau, F. 114 Betanian Foundation, Norway 24–5 blame see attribution/blame Block, J. 78 Blomhoff, A. 24–5 board of directors–CEO relationship 29, 156; power and influence 17–18, 21, 22; trust 23–4

Bonnesen, B. 148 Borgen, T. 105 Braun, M. 36, 37, 93, 149 bribery 26, 58, 59–60, 75, 110 Bush, G. W. 34 cable market 119 Campagna, R. L. et al. 2, 4, 5–7, 24 cartels 113, 126, 130; activities 113–15; corruption networks 115–16; Norwegian 118–20; rule complexity collapse 116–18 celebrity CEOs 78–80 CEO fraud vs fake CEO 18 Chan, J. et al. 1, 2 charity/not-for-profit sector 8–9; Mercy Corps, Democratic Republic of Congo 147–8, 150–1 Chazan, G. 36–7 Chen, J. and Nadkarni, S. 54 chief executive officers (CEOs) 17; accountability of 25–7, 28–9; power and influence 17–23; role and behavior 27–30; trust in 23–5 choice and innocence 64–5, 131 Christiansen, S. 7–8 cognitive orientation/mindset 19–20, 29 Coleman, J. 118, 127 competition vs stigma effects 145–6, 150–2 compliance function, efforts in repairing trust 12 concealment of crime 60–1, 62, 88–9, 128, 129–30 concerted organizational ignorance 97–9, 149 conservative and liberal perspectives 45 control of guardianship 105; institutional deterioration 129–30; lack of oversight 59–60, 62, 105–7, 129–30; lack of

Index 159 whistleblowing willingness 107–8; misleading crime attribution 108–9; signal detection and ethical climate 109–10 convenience theory 54–6; community-level analysis 115; financial possibilities and threats 56–9; offender deviance willingness 62–8; organizational opportunities 59–62; structural model 57 corporate crime: concept of 44; vs occupational crime 25, 40 corporate greed 57–8 corporate liability 47–8 corporate social responsibility (CSR) and irresponsibility (CSIR) 27, 42–3, 98 corrupt organizations vs organizations of corrupt individuals 89 corruption networks 115–16 crime convenience orientation see convenience theory crime signals see signals/signal detection criminal liability 47–8 Crosina, E. and Pratt, M. G. 78, 98, 126 culture see organizational culture Dahl, J. 113, 118 Danske Bank, Denmark 36, 105, 106, 146–7 decay/deterioration see institutional deterioration decision-making 44, 55–6 denial of responsibility/wrongdoing 65, 134, 144, 145; Benulic case 80; Kukies case 36–7 detection: cartel activities 119–20; investigative journalists 93, 132; signal 61, 62, 80–1, 109; street crime vs white-collar offending 45; suspicion of misconduct and 89–90 Deutsche Bank 37, 93 Dewan, Y. and Jensen, M. 82, 131 differential association theory 40–1, 64, 133 disclosure of wrongdoing: doctrine of corporate liability 47–8; scandal after 82, 131; whistleblowers 98, 107–8 Downing, S. T. et al. 58–9, 126 dysfunctional mirror networks 96–7 Eberl, P. et al. 11–13, 75, 116 Enger, T. 26, 27 Enron, US 34, 48 entrepreneurship 76, 86, 127 environmental harm 46

Ernst & Young (EY), Germany 37, 93 ethical climate perspective 109–10 European Commission: Directorate General for Competition 114 exchange relationships 58 executives–CEO relationship 17, 18, 20, 21 fairness of perceived trust 3–5, 23 fake CEO vs CEO fraud 18 felt trust and actual trust 2, 5–7, 24 financial compensation following not guilty verdict 156 financial crisis (2008) 77–8 financial possibilities and threats 56–9 Financial Times 93, 149 fines 25, 48, 75, 77; cartel activities 113, 119–20 Fischel, D. R. and Sykes, A. O. 48 Fleckenstein, M. P. and Bowes, J. C. 2, 8, 9–10 foreign aid 146–7, 151 four-eye principle 12, 156 Frangione, A. F. 9 fraud and corruption 88, 110, 116; as temporary measures 58, 125–6 fraud investigation 146; reports 35–7, 106, 146 Fuji Xerox 36, 106 Galvin, B. M. et al. 37, 38, 40, 63, 64, 132 Gamache, D. L. and McNamara, G. 55 gender: of offenders 34–5, 77; trust depending on 13–14 General Motors 59 globalization and rule complexity collapse 117, 130 goalsetting and unethical behavior 57, 125 Goncharov, I. and Peter, C. D. 114–15, 119, 126 Gottschalk, P.: Apistola, M. and 2; and Benson, M. L. 145; Benson, M. L. and 77; and Gunnesdal, L. 119–20; and Tcherni-Buzzeo, M. 146 governance and government 98–9; globalization and rule complexity collapse 117, 130 greed 57–8, 86, 101, 123–4 guardianship see control of guardianship Hambrick, D. C.et al. 20, 22; and Wowak, A. J. 18, 30, 78–9, 99 Hamdani, A. and Klement, A. 47, 48 heroic celebrity 78–80

160 Index hierarchy: of needs 86, 124; organizational see power; privileged position status hubris 27, 79 human capital 28 humor 81–2 Hurtigruten Cruises 147, 151 identity see narcissistic organizational identification ignorance, concerted organizational 97–9, 149 imprisonment/incarceration 26, 30, 45–6, 86; cartel activity 116; deterrence 132; statistics 45, 47 industry effects 142–3; business climate 47; corporate crisis and scandals 143–5; internal fraud examiners 146; stigma vs competition 145–52 innocence and choice 64–5, 131 insider trading 37 institutional deterioration 93; concerted organizational ignorance 97–9, 149; dysfunctional mirror networks 96–7; lack of oversight 129–30; and moral collapse 93–6, 128; narcissistic identification 99–101 irresponsibility: and corporate social responsibility (CSR) 27, 42–3, 98; organized 82–3 job loss, threat of 98 journalists/media 79, 93, 132, 146, 149, 156 justification and neutralization 62–8, 87, 133–4, 144 Kakkar, H. et al. 76, 126–7 Karim, K. E. and Siegel, P. H. 61, 109 Kim, P. H. et al. 1, 2, 4–5, 10, 11, 144 Kleinewiese, J. 118 Kleinfeld, P. 147–8 knowledge: asymmetry 21, 23, 59, 62, 105; and attention bandwidth 22, 59, 126; limits 28, 97, 149; vs mindset 29 Kongsberg Group 26 Kourula, A. et al. 98–9 Külpe, O. 19 Kuvaas, B. et al. 125 Lange, D. et al. 29 language and humor 80–2 Larsen, M. M. 7–8 Lay, K. 34, 35 learning theory of deviance: differential association theory 40–1, 64, 133

legal systems, differences in 43, 156 Lehman, D. W. et al. 67–8 Lehman Brothers 78 Liang, L. H. et al. 64, 131 liberal and conservative perspectives 45 Logan, M. W. et al. 45 Long, J. et al. 45–6, 47 Lunder, J. 25 Madoff, B. 35 management and social disorganization 96–7 Marsalek, J. 37, 93 Maslow, A. 86, 124 maximum individual utility, rational actors and 26, 60, 106 media/journalists 79, 93, 132, 146, 149, 156 Mercy Corps, Democratic Republic of Congo 147–8, 150–1 Merkel, A. 36–7, 149 Microsoft 96 Middelhoff, T. 86–7 mindsets 19–20, 29 mirror networks, dysfunctional 96–7 misleading crime attribution 108–9 Mohliver, A. 106–7, 129 money laundering 36, 75, 90, 105, 148; and tax evasion 26, 90 monitoring: role of boards of directors 22; and trust 12–13; see also control of guardianship moral collapse 93–6, 128 motivational crime themes 123–6 Mulinari, S. et al. 144–5 narcissism: and trust 5, 24; vs hubris 27 narcissistic organizational identification 29–30, 37–9, 63–4, 132; and institutional deterioration 99–101 Naumovska, I. and Lavie, D. 142–3, 145–6, 150, 151 Nechepurenko, I. 149 networks see cartels neutralization and justification 62–8, 87, 133–4, 144 New York Times 149 Nielsen, R. P. 115 no attribution of blame 77–8 non-accused organizations see industry effects Nordea Bank 26 not guilty verdict 156 not-for-profit sector see charity/not-forprofit sector

Index 161 occupational crime vs corporate crime 25, 40 occupational status and sentencing 46 offender-based perspective 39–42 Oliveira, C. R. and Silveira, R. A. 43 opportunity crime themes 126–31 organizational culture: facilitative 44; language 80; and organizational structure 156; trust 11; see also institutional deterioration organizational hierarchy see power; privileged position status organizational identification see narcissistic organizational identification organizational mourning 98 organizational opportunities 59–62, 93 organized irresponsibility 60, 82–3 oversight and guardianship, lack of 59–60, 62, 105–7, 129–30 Patterson, S. 47–8 Pentecostal Church, Norway 7–8 physical harm 46 Pinto, J. et al. 89, 94 Pontell, H. N. et al. 77–8, 82, 117 Porter, M. E. et al. 18, 25, 28 positive expectations and trust 1, 2, 10 power: and blame 59; and influence of CEOs 17–23; and universalism, as value constructs 46–7; see also privileged position status principal–agent theory/agency theory: CEO–board relationship 21, 23–4, 156; lack of oversight and guardianship 59–60, 62, 105–7, 129 privileged position status 75, 126–8, 131; characteristics 75–7; heroic celebrities 78–80; language and humor 80–2; no attribution of blame 77–8; organized irresponsibility 82–3 problem-solving role 19 product market and stock market evaluation (U-shaped effect) 145–6, 150–2 public opinion 45, 46, 47 public trust, violation of 39 race 83 Ramoglou, S. and Tsang, E. W. K. 59 Ranft, A. L. et al. 28–9 rational choice 132–3; and individual utility maximization 29, 60, 106 religious institutions 7–10, 24–5 research propositions 123; motivational crime themes 123–6; opportunity crime

themes 126–31; willingness crime themes 131–4 resource: access 86–7, 89–90, 128; -based perspective 88–9; characteristics 87–8 robber barons 42 role and behavior of CEOs 27–30 routine activity perspective 89 rule adjustments 12 rule complexity 67–8; collapse 116–18, 130 Sajko, M. et al. 58, 101, 123–4 scapegoating 59, 144–5 Schaumberg, R. L. and Flynn, F. J. 14 Scheaf, D. J. and Wood, M. S. 127 Schneider, A. and Scherer, A. G. 130 Schoen, J. L. et al. 133–4 Schütz, A. 37 Sector Alarm, Norway 113, 118 Seddon, M. 149 self-efficacy 22–3 self-interest: and greed 123–4; see also rational choice self-regulation/control 63–4, 98, 131 sensation seeking 64 sentencing see fines; imprisonment/ incarceration seriousness of corporate crime 42–8 Shadnam, M. and Lawrence, T. B. 95, 128 Shichor, D. and Heeren, J. W. 97, 149 Siemens, Germany 11–13, 75, 108, 109, 116, 143–4 signals/signal detection 61, 62, 80–1, 109 situational action theory (SAT) 118 situational attribution 144 Smith, A. N. et al. 13–14 social bonds 61, 97 social capital 87–8 social disorganization 59, 61, 96–7 social norms, violation of 81–2 Sohoni, T. and Rorie, M. 83 Sonnier, B. M. et al. 108 Spiekermann, U. 42; Berghoff, H. and 41, 88, 89, 94, 128 sports/football 149–50 Spreckels, C. 42 state moral disagreement 57, 125 Stathopoulou, A. et al. 149–50 Staveland, T. 113, 118 stigma vs competition effects 145–6, 150–2 Storbeck, O. 37; and Morris, S. 36, 37 strain perspective 124 street offenders vs white-collar offenders 44–5, 46, 47

162 Index Sutherland, E. H. 35, 39, 40–2, 44, 64, 115 Swedbank 148

Verisure, Norway 113, 118 VimpelCom 25, 36, 106 von Pierer, H. 75

tax evasion/havens 26, 90 Thaxton, S. and Agnew, R. 124 time: and knowledge limits 28; saving 55, 56, 63; urgency 54 Tingstad, T. 22, 26 Toshiba Corporation 36, 106 transparency, lack of 98, 129 Transparency International corruption index 150–1 trust 1–3; abuse of 88; in CEOs 23–5; definitions of 2, 3, 10; fairness of perceived trust 3–5; felt and actual 2, 5–7; and gender 13–14; in religious institutions 7–10, 24–5; repair 10–13, 144; violation of public 39; wanted and received 3, 4, 23–4

Wallace, K. 26, 27 Wells Fargo, US 36, 97, 106 whistleblowing 98, 107–8 white-collar offenders 34–5; corporate crime seriousness 42–8; fraud investigation reports 35–7; narcissists 37–9; offender-based perspective 39–42 whiteness 83 Wikstrom, P. O. H. et al. 118 willingness 131–4; offender deviance 62–8; resource-based perspective 88, 89 window dressing 12–13, 116 Wirecard, Germany 36–7, 93, 149 Witt, M. A. et al. 17–18

Unibank, Moldova 148–9, 150–1 Uygur, S. A. 7, 8–9

Yam, K. C. et al. 81–2 Yara, Norway 26–7, 116

values and white-collar crime 46–7

Zhu, D. H. and Chen, G. 38, 63, 100–1