Corporate Social License: A Study in Legitimacy, Conformance, and Corruption 3031450787, 9783031450785

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Corporate Social License A Study in Legitimacy, Conformance, and Corruption Petter Gottschalk · Christopher Hamerton

Corporate Social License

Petter Gottschalk · Christopher Hamerton

Corporate Social License A Study in Legitimacy, Conformance, and Corruption

Petter Gottschalk Department of Leadership and Organizational Behaviour BI Norwegian Business School Oslo, Norway

Christopher Hamerton Sociology, Social Policy and Criminology University of Southampton Southampton, UK

ISBN 978-3-031-45078-5 ISBN 978-3-031-45079-2 https://doi.org/10.1007/978-3-031-45079-2

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover credit: Ka Wing Yu/Alamy Stock Photo This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

Contents

1

Introduction References

1 12

2

Violations of the Social License The Social License to Operate Corporate Investigation Reports Case: Bestseller Garments in Myanmar Case: Obos Housing in Norway Case: Samherji Fishing in Namibia Effective Informal Social Control References

15 17 20 22 24 27 31 33

3

Institutional Theory Perspectives Traditional Strategic Responses to Pressure Characteristics of People Institutions Institutional Deterioration Causing Decay Institutional Plasticity Enabling Change References

41 42 44 50 59 63

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Contents

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Stakeholder Theory Perspectives Gaining and Keeping a Social License Involvement of Business Stakeholders Impact of Community Religion Managers Without Workplace Morals Offender Recidivism Magnitude White-Collar Support Group Chasing Former Chief Executive I Chasing Former Chief Executive II References

71 72 73 76 78 80 81 85 90 93

5

Legitimacy and the Corporate Social License Corporate Business Trustworthiness Social License Contract Perspective Corporate Moral Legitimacy Perspective Relevant Sources of License Authority Important Substance of Social License Critical Value of Social License An Australian Case Study References

101 103 106 108 110 114 122 125 127

6

Corporate Response to Normative Social Pressure Corporate Responses to Normative Pressures Normative Corporate Corruption Pressure Normative Pressure from Auditors Call for New Form of Capitalism Social Economic Conflict in Society Remaking Capitalism for Social Acceptance References

131 133 136 138 140 144 148 150

7

The Convenience Theory Approach Chief Executive Offenders Deviance Convenience Propositions Executive Status Convenience Resource Access Convenience Corporate Deterioration Convenience Principal–Agent Convenience

153 156 158 162 164 166 170

Contents

vii

Rule Complexity Convenience Outside-In Normative Pressure References

171 172 175

8

Considerations on Corporate Social Responsibility Symbolic and Substantive CSR Institutional Theory Perspective Individual Social Impact Work References

185 187 190 192 193

9

Challenging the Social License Community Pressure on the Rooibos Industry Social License for the Seam Gas Industry Social License for the Mining Industry Social License Loss for a Gas Company Siemens Change After Corruption Scandal Bestseller Avoidance of Myanmar Business References

197 198 202 204 206 207 209 212

10

Social License and the Impact of Corporate Change Obos Return to Ordinary People Housing Characteristics of Obos Social Housing Motive Convenience Themes Opportunity Convenience Themes Willingness Convenience Themes Investigation Report Outcome Violations of the Social License Regaining the Social License References

215 216 219 224 227 228 230 232 237 242

11

Compliance-Conformity-Convenience Compliance in Corporate Governance Remaking Capitalism for Social Acceptance Responses to Normative Pressures Research Perspectives on Compliance Legalistic and Formalistic Approaches Compliance Audits and Risk Assessment Fraud Examinations of Compliance Failures

247 249 253 255 258 263 265 266

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Contents

Maturity Model for Corporate Compliance References

271 242

Gendered Perspectives on Social License and Corporate Crime Emancipation Versus Focal Concern Empirical Gender Studies Convenience Theory Propositions Gender Motive Variability Gender Willingness Variability Glass Ceiling and Glass Cliff References

283 285 286 291 294 296 297 300

13

Making Sense of Deviance: Comparative Perspectives Survey Research in India Survey Research in Norway Survey Research in the United States Survey Research in Iran Comparison of Survey Research References

309 312 323 328 332 338 341

14

Conclusion References

345 349

12

Bibliography

351

Index

391

List of Figures

Fig. Fig. Fig. Fig. Fig.

7.1 10.1 12.1 12.2 13.1

Structural model of convenience theory Convenience themes in the case of Obos executives Female offending fraction and gender equality index Structural model of convenience theory Structural model of convenience theory

161 226 289 293 311

ix

List of Tables

Table 10.1 Table 12.1 Table 13.1 Table 13.2 Table 13.3 Table 13.4 Table 13.5 Table 13.6 Table 13.7 Table 13.8 Table 13.9

Attempts to regain the social license by Obos executives Various gender perspectives on perpetrators Measurement instrument for understandability of wrongdoing Measurement instrument for convenience propositions Descriptive statistics for responses Potential determinants of understandable occupational crime Potential determinants of understandable corporate crime Mean scores for convenience for assumed offenders (1) versus non-offenders (2) Convenience significance for assumed offenders versus non-offenders Mean scores for convenience for assumed offenders (1) versus non-offenders (2) Convenience significance for assumed offenders versus non-offenders

240 290 313 314 316 318 321 325 326 331 333

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xii

List of Tables

Table 13.10 Table 13.11 Table 14.1

Measurement instrument for convenience propositions in Iran Comparison of India (individual and corporate) with Norway and Iran How management can regain the social license

334 340 347

1 Introduction

This book aims to make a distinctive and innovative contribution to the study of white-collar and corporate crime through detailed examination of the use, affect, and violation of the corporate social license, a term frequently extended to the social license to operate. The social license—a public perception that can be earned, lost, and regained—fits within the wider remit of corporate social responsibility as a form of private business self-regulation through normative pressure. This links social license to established models of business legitimacy, ethical practice, and conformance, and conversely episodes of business illegitimacy, malpractice, and corruption. While, discrete aspects of corporate social responsibility have found their way into the discourse on business deviance and crime, no book to date has provided a detailed exploration of the corporate social license through a criminological lens. Here, the intention and aim is to redress this omission by initiating a project which foregrounds the concept as a key area for critical analysis and systematic inquiry. Using an interdisciplinary focus which includes illustrative case studies and largescale original fieldwork, the book explores European, North American, Asian, and global perspectives and paradigms to identify, position, and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_1

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reveal the impact of the social license on contemporary conceptions of white-collar and corporate deviance and crime. Any project attempting to navigate such a wide and developing field must be bounded by practical limitations in terms of theory and context. Thus, it should be noted at the outset that this examination primarily focuses on breaches of the social license founded on economically motivated deviance and crime, with interpretation from a systems and convenience theory perspective—an approach covered in detail in Chapter 7. The research and case studies chosen are contemporary, with the book offered as an analysis of selected current developments— a critical monograph. Thus, while we acknowledge a sincere debt of gratitude to the underpinning scholarship into globalized crimes of the powerful from luminary peers such as Sutherland (1949, 1983), Braithwaite (1984, 1989), Kauzlarich and Kramer (1998), Green and Ward (2004), Franko-Aas (2007), Rothe (2014), Rothe and Kauzlarich (2022) systematic coverage of these key works is not within the ambitions or scope of this study. Adopting an international view, the authors argue that a distinction is often made between the legal license to operate and the social license to operate. The latter referring to compliance with laws, regulations, and rules that apply within the jurisdiction, while the former refers to conformance with norms, values, and guidelines that apply within the society—the wider concept of legitimacy. Consequently, in many jurisdictions there are blurred lines between the legal and the social license to operate, a clear example being crimes of the powerful. Within this sphere, corporate crime and corporate criminal liability are not directly based on “a singular, statutorily defined offense but rather a broad and unforgiving attribution rule” (Baer, 2022: 891). Thus, while there are laws punishing corruption, fraud, and other forms of crime that can be attributed to white-collar individuals in organizations, there is indeed often difficult to assign legal liability. Without a chance or little chance to assign legal liability, assigning social liability is an alternative. Such blurred lines need bridging between social expectations and public regulations. Regulatory calls for assumed compliance and normative conformance to avoid crime convenience is not just a matter of individual and organizational wrongdoing that harms other individuals and organizations. It is

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also a matter of global sustainability as described by the United Nations (UN). The UN Sustainable Development Goal 16 concerns 12 targets for promoting peace, justice, and strong institutions (Windsor, 2022). Moreover, Haines et al. (2022) examined how social control in the form of community pressure might be used to control corporate harm and shape business conduct in a more socially responsible direction. The suggestion here is for an extended view of social license to civilize, control, or repel corporate activity. In this model, social license can be established as acceptance of a business or business activity within a particular community, a key addition to the legal license to operate business activities. The social license forms part of a bottom-up and outside-in strategy where wrongdoing becomes social property independent of the criminal justice system. A desired objective is the expansion of this existing hypothesis, contending that the current manifestation of the social license can be evaluated as predominantly centered on normative social permission for business activity where the media, social movements, and citizen watchdogs exert pressure, demand change, and bring enterprises to account. This view—often overlooked in systematic criminological analyses of corporate malpractice—frames the social license, when present, as a visible manifestation of a commitment to corporate social responsibility regarding agreement between company and community in business operations. From the perspective of social license, bottom-up as well as outside-in concerns should occupy board members’ and top executives’ attention. Here, bottom-up control refers to the manner in which organizational members can use different types of control mechanisms—such as whistleblowing, transparency, resource constraints, and organizational culture—to monitor, measure, and evaluate executives’ avoidance of deviant behaviors and influence them toward achieving the organizations’ goals in efficient, effective, and socially acceptable ways (Haines et al., 2022; Sale, 2021; Zhong & Robinson, 2021). Indeed, negative statements by politicians, activists, employees, journalists, and others can indeed cause damage to the business as well as harm the careers of people in trusted elite positions. While some companies initially attempt to respond by secrecy, the eventual publicness of wrongdoing, although not illegal, will cause damage. Consequently, with reference to comparative

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analysis and fieldwork, the book argues that the bottom-up approach of securing social license contributes to corporate avoidance of wrongdoing and the reinforcement of normative social expectations, while highlighting corporate deviance in corruption and violation in omission or breach. Considering recent analyses across interdisciplinary fields, Haines et al. (2022: 184) examined “how social control in the form of community pressure might be used to control corporate harm and shape business conduct in a more socially responsible direction”. They suggested a social license to civilize, control, or repel corporate activity. They defined a social license as acceptance of a business or business activity within a particular community. The social license adds to the legal license to operate business activities. The social license forms part of a bottom-up and outside-in strategy where wrongdoing becomes social property independent of the criminal justice system. Within this view, the social license is predominantly centered on social permission for business activity where the media, social movements, and citizen watchdogs exert pressure, demand change, and bring enterprises to account. The social license if present is a visible manifestation of a commitment to corporate social responsibility regarding agreement between company and community in business operations. Sale (2021) defined social license as the acceptance of a business or organization by the relevant communities and stakeholders, and Cui et al. (2016: 775) referred to the social license to operate as “a community’s acceptance or approval of a specific company project or of the entire company’s ongoing operations in the community”. Melé and Armengou (2016) referred to social license as the acceptance of the expansion of profit-seeking business that can affect community life. More scholarly definitions and a wider analysis of the expression “corporate social license to operate” are presented in Chapter 2. Haines et al. (2022) studied community pressure against unconventional gas exploration by a large resources company in New South Wales (NSW) in Australia. While the bottom-up and outside-in approaches by various stakeholders were successful in reducing corporate harm, a number of issues emerged related to authority, meaning, and value. For example, an issue was to identify who were entitled to represent the

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community. Those chosen and accepted to represent the community might be those considered mature enough for the role, while critical and eccentric voices can be deemed unsuitable. In their case study, the social license went far beyond the legal license: Company representatives felt that an a priori assertion of their legal right to access land would be met by anger and defiance. Relying on their legal rights would be seen as arrogant and likely to lead to lengthy court disputes, one argued ‘we never tested it’ (their legal rights). Unlike coal mines where land to be mined is acquired by coal companies, gas companies did not need to acquire land (as subsurface resources in NSW are owned by the state), but they did need access to land in order to access those resources. (Haines et al., 2022: 191)

Sale studied Wells Fargo and Uber as cases of how the failure to account for the public nature of corporate actions, regardless of whether a “legal” license exists, can result in the loss of “social” license. This loss occurs through publicness, which is the interplay between inside corporate governance players and outside actors who report on, recapitulate, reframe, and, in some cases, control the company’s information and public perception (Sale, 2021: 785). In this examination it was discovered that most of Wells Fargo’s profits and growth were coming from the Community Bank. Executives as well as other employees in the community banking division at Wells Fargo had their motives for financial wrongdoing. Both pressures and possibilities were their motives. Sanger et al. (2017: 2) found that there was an explicit and strong “pressure on employees to sell unwanted or unneeded products to customers”. The banking division was a sales-driven organization. Hired people got instructions in these sales practices and would lose their jobs otherwise. While risking their social license, the threat of job loss seemed more serious. The threat of job loss became a reality after disclosure of the account fraud scandal: “Approximately 5300 employees had been terminated for sales practices violations through the September 2016 settlements with the Los Angeles City Attorney” (Sanger et al., 2017: 2). Before the termination of all those employees “poor performance in

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many instances led to shaming or worse” (Sanger et al., 2017: 30). Investigators found that employees below the branch manager level—lower level in-branch managers and non-managers—frequently cited branch managers as actively directing misconduct or offering inappropriate guidance to subordinates on what constituted acceptable conduct. “Everyone was aware of what was implied when the manager would state ‘it’s late in the day and we need a certain number of accounts by the end of the day’” (Sanger et al., 2017: 37). An important possibility was compensation, as ambitious sales goals linked directly to incentive compensation: Employees were measured on how they performed relative to these goals. They were ranked against one another on their performance relative to these goals, and their incentive compensation and promotional opportunities were determined relative to those goals. The system created intense pressure to perform, and, in certain areas, local and regional managers imposed excessive pressure on their subordinates. (Sanger et al., 2017: 20)

Because of such deviant practices, the Community Bank at Wells Fargo lost its social license as the process of publicness exposed additional frauds: Take for example, the car loan repossession scandal. Between 20,000 and 570,000 customers of the bank were enrolled in and charged for car insurance without their knowledge, and when some of them failed to make payments on the unknown insurance, they had their cars repossessed. Even though Wells Fargo said it was “extremely sorry” and promised to refund customers and work with credit bureaus, its response lacked credibility. (Sale, 2021: 833)

The idea here is that the legal license was not necessarily violated, while the social license was certainly violated. Therefore, board members and executives could probably not be prosecuted in court, while the business suffered from social disapproval (Sale, 2021: 837): Although it is unclear what information the Wells Fargo board received, ex post investigations reveal that the company’s decentralized nature and,

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perhaps, management evasion resulted in fragmented reporting, which in turn contributed to the sustained nature of the fraud. Yet, if the board had pressed with questions about management strategy and its downside risks, the board would have ensured dialogue about the types of underlying facts necessary to develop legitimacy, credibility, and trust and thus helped to protect the company’s social license.

The typical outcome of social license violations seems to be the dismissal of executives at various levels in an attempt to regain trust, for example: • CEO Carrie Tolstedt at Community Bank in the United States had to leave her position despite her attempts to blame individual employees (Sanger et al., 2017: 103): “Tolstedt emphasized that a large organization could not be perfect, and that the sales practice problem was a result of improper action on the part of individual employees”. • CEO Birgitte Bonnesen at Swedbank in Sweden had to leave her position after the money laundering scandal investigated by Clifford Chance (2020). The new Swedbank board decided to withdraw her final compensation (Johannessen & Christensen, 2020). • CEO Thomas Borgen at Danske Bank in Denmark had to leave his position after a similar money laundering scandal investigated by Bruun Hjejle (2018). • CEO Martin Winterkorn at Volkswagen in Germany had to resign because of the emission manipulation scandal (Jung & Sharon, 2019). • CEO Thorsteinn Mar Baldvinsson had to step aside until the pending internal investigation into the Icelandic company’s subsidiaries’ alleged wrongdoing in Namibia was to be completed (Samherji, 2019a, 2019b, 2020a, 2020b, 2021). In the Swedbank case, there was later determined that a violation of the legal license had also occurred. The former chief executive at Swedbank resigned from the position while Clifford Chance was still conducting the internal investigation. Another executive resigned from the position of chief compliance officer when the bank publicized the

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report of investigation. Two years later, in 2022, the former chief executive at Swedbank, Birgitte Bonnesen, was charged with fraud and market manipulation by the Swedish prosecutor (Ismail, 2022: 7): The revelations at that time led to a number of people in senior positions having to leave. The bank also received a record fine of four billion Swedish kroner, according to Swedish public broadcasting. One of those who were fired was Swedbank’s top executive Birgitte Bonnesen. In January this year, the Swedish economic crime authority brought charges against Bonnesen for gross fraud and market manipulation.

In addition, the entire former management of Swedbank in Estonia was suspected of money laundering. The Estonian public prosecutor suspected that the management of Swedbank’s Estonian bank contributed to laundering of 100 million Euros in the years 2014–2016. Some of the suspected money laundering was linked to Mikhail Abyzov, a former minister in the Russian government (Ismail, 2022). Many more examples of dismissed chief executives come to mind. However, more interesting to mention are situations where blame is attributed downward in a corporate hierarchy to regain the social license to operate. An example is General Motors after the Cobalt ignition switch failure. Rather than blaming CEO Mary Barra, several others had to leave. Bill Kemp, a senior lawyer in the automobile company, was one out of several who received blame for the lack of reaction to the ignition switch failure (Shepardson & Burden, 2014). The social license to operate seems dependent on how the company is able to negotiate and achieve acceptance of the various impacts its operations might have on the local community. When the term was coined, it was especially concerned with environmental harm from mining companies and other physical business activities (Buhmann, 2016). Later, the use of the term expanded to human rights and conditions for workers within the companies. Consequently, the term of social license to operate is related to several other constructs such as corporate social responsibility, stakeholder engagement, governance structure, and democratic processes (Cui et al., 2016).

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From the perspective of social license, bottom-up as well as outside-in concerns should occupy board members’ and top executives’ attention. Negative statements by politicians, activists, employees, journalists, and others can indeed cause damage to the business as well as harm the career of people in trusted elite positions. While some companies initially attempt to respond by secrecy, the eventual publicness of wrongdoing, although not illegal, will cause damage. Therefore, as argued by Sale (2021) and Haines et al. (2022), the bottom-up approach of securing corporate social license contributes to corporate avoidance of wrongdoing. The bottom-up approach to executive compliance and conformance focuses on organizational measures to make white-collar wrongdoing less convenient for potential offenders. Bottom-up control refers to the manner in which organizational members can use different types of control mechanisms—such as whistleblowing, transparency, resource constraints, and organizational culture—to monitor, measure, and evaluate executives’ avoidance of deviant behaviors and influence them toward achieving the organizations’ goals in efficient, effective, and socially acceptable ways (Zhong & Robinson, 2021). In terms of introducing chapter synopsis and coverage, Chapter 2 expands scholarly definitions regarding the concept of corporate social license to operate, such as the social license being “a social construction to which various stakeholders contribute” (Baba et al., 2021: 248), before moving into the danger of violating the license. Violations are exemplified by cases derived from corporate investigation reports. The investigation reports indicate that wrongdoing might have occurred that do not represent crime, but the deviance has threatened to social license. The cases covered include Danish clothing firm Bestseller that produced its garments in Myanmar that could benefit the military junta, the Norwegian housing firm Obos that was supposed to build ordinary homes for ordinary people, and the Icelandic fishing firm that obtained fishing rights outside the coast of Namibia in Africa where bribes were involved. An interesting perspective on the corporate social license is institutional theory that can explain how businesses respond to pressures as discussed in Chapter 3. Institutional theory assumes that the social context has an important impact on human behavior, while at the

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same time downplaying the role of strategic responses often found in the management literature. Institutional theory emphasizes conformance that refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019). Another interesting perspective on the corporate social license is stakeholder theory that can explain how businesses repond to various interest groups as discussed in Chapter 4. Then the social license is “the set of demands and expectations held by local stakeholders and broader society about how a business should operate”, and “a license is then said to be granted if the business is deemed to have met these demands and expectations – and thus is viewed as being socially acceptable” (Hurst et al., 2020: 1). Chapter 5 discusses important issues regarding the social license to operate. Important issues include the relevance of various sources of license authority, relevant substance of the social license, and the value of gaining the social license. Furthermore, the perspectives of social license contract and moral legitimacy are covered in this chapter. Moral legitimacy refers to acting in accordance with common interests. Melé and Armengou (2016: 729) argued that “moral legitimacy entails intrinsic value and helps executives convince firm’s stakeholders and the general public of the ethical acceptability of an institution or its activities or projects”. Corporate responses to normative pressures are discussed in Chapter 6. Normative pressures refer to socially derived expectations where a plurality of institutional demands tends to be combined. Durand et al. (2019) made a distinction between willingness and ability of organizations to respond to normative pressures. The willingness derives from issue salience that refers to the extent to which a stakeholder issue resonates with and is prioritized by management. The ability refers to available resources and capabilities that lead to an assessment of taking or not taking action on the issue. There is also a more general pressure from conflicts in society that call for a new form of capitalism. The theory of convenience is explained in Chapter 7. Avoidance of misconduct and crime to gain and keep the social license is a matter of reducing motives for illegitimate gain, reducing organizational opportunities to commit and conceal wrongdoing, and reducing individual

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willingness for deviant behavior (Gottschalk, 2022). Traditionally, the perspective of corporate social responsibility has dominated regarding executive attention to stakeholders and normative pressures. However, as discussed in Chapter 8, corporate social responsibility has tended to be taken by symbolic rather than substantive actions. Chapter 9 presents a series of interrelated case studies where the social license to operate has been challenged. The cases are from different parts of the world: South Africa for the rooibos industry, Australia for the seam gas industry, Peru for the mining industry, the Netherlands for a gas company, Germany for a technology company, and Denmark for a garments firm. Obos was a construction company that was building ordinary homes for ordinary people in Norway for several decades after World War II. The company was organized as a cooperative where people who had Obos housing as well as people who searched for Obos housing were members of the cooperative. Suddenly, the new chief executive seemed to change the business model of the cooperative company that caused a member revolt that threatened the social license to operate (Larsen, 2021). The case of Obos is presented in Chapter 10. Chapter 11 reviews the various perspectives on conformity, compliance, and convenience. Corporate compliance and conformity are both a matter of issue salience and profitability in terms of benefits exceeding cost. This might seem strange since lack of compliance represents violations of laws and regulations, while lack of conformity represents violations of norms and expectations. It seems more serious to violate laws than norms for corporations. However, if issue salience reflects the seriousness of non-compliance versus non-conformity, then the difference between the two might in some cases in fact be in the opposite direction. Traditionally, men in executive positions have been responsible for deviant acts that have threatened and potentially violated the social license to operate. The participation of women is less clear. Based on limited empirical evidence of stable women involvement in white-collar crime independent of the extent of gender inequality in Iran, Portugal, Norway, India, and the United States, Chapter 12 suggests relative convenience as a potential explanation of the stability. We argue that

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increased opportunity convenience of committing and concealing financial crime in an organizational setting from greater gender equality is associated with reduced motive and willingness to commit and conceal financial crime for potential female offenders. The chapter attempts to move beyond the traditional perspectives of emancipation versus focal concern, which argue that less inequality will increase women involvement in white-collar crime versus women socializing into accepting responsibilities for social concerns by caring for others. While business conformance is the main issue in this book, it does not help to argue for and claim business conformance if lack of conformance is not understood. It is important to understand a negative phenomenon to be able to avoid it. Simply stated, “it takes a criminal to catch a criminal”, or “it takes a thief to catch a thief ”. Therefore, the final substantive chapter, Chapter 13, explores empirically how deviance in the form of white-collar crime can be understood. This is followed by a brief and reflective conclusion.

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Cui, J., Jo, H., & Velasquez, M. G. (2016). Community religion, employees, and the social license to operate. Journal of Business Ethics, 136 , 775–807. Durand, R., Hawn, O., & Ioannou, I. (2019). Willing and able: A general model of organizational responses to normative pressures. Academy of Management Review, 44 (2), 299–320. Franko-Aas, K. (2007). Globalization and crime. Sage. Green, P., & Ward, T. (2004). State crime: Governments, violence and corruption. Pluto. Gottschalk, P. (2022). Trusted chief executives in convenient white-collar crime. Crime & Delinquency, 1–29. https://doi.org/10.1177/001112872211 04737 Haines, F., Bice, S., Einfeld, C., & Sullivan, H. (2022). Countering corporate power through social control: What does a social licence offer? The British Journal of Criminology, 62, 184–199. Hurst, B., Johnston, K. A., & Lane, A. B. (2020). Engaging for a social license to operate. Public Relations Review, 40. https://doi.org/10.1016/j.pubrev. 2020.101931 Ismail, K. (2022, March 28, Monday). Swedbanks tidligere ledelse i Estland mistenkt for hvitvasking (Swedbank’s former management in Estland suspected of money laundering). Daily Norwegian business newspaper Dagens Næringsliv, p. 7. Johannessen, S. Ø., & Christensen, J. (2020, March 23). Swedbank vil ikke betale sluttpakke til toppsjef som matte gå av etter hvitvaskingsskandale (Swedbank will not pay final package to top executive who had to leave after money laundering scandal). Daily Norwegian business newspaper Dagens Næringsliv. www.dn.no. Jung, J. C., & Sharon, E. (2019). The Volkswagen emissions scandal and its aftermath. Global Business & Organizational Excellence, 38(4), 6–15. Kauzlarich, D., & Kramer, R. (1998). Crimes of the American nuclear state: At home and abroad . Northeastern University Press. Larsen, B. E. (2021, June 19). Noen betraktninger før Obos’ generalforsamling 2021 (Some considerations before Obos’ general assembly 2021). Benjamin E. Larsen’s Blog. www.benjaminlarsen.net. Melé, D., & Armengou, J. (2016). Moral legitimacy in controversial projects and its relationships with social license to operate: A case study. Journal of Business Ethics, 136 , 729–742. Rothe, D. (2014). Crimes of globalization. Taylor and Francis. Rothe, D., & Kauzlarich, D. (2022). Crimes of the powerful: White-collar crime and beyond . Routledge.

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Sale, H. A. (2021). The corporate purpose of social license. Sothern California Law Review, 94 (4), 785–842. Samherji. (2019a, November 11). Statement from Samherji: Press release, www. samherji.is. Published by [email protected] Samherji (2019b, November 14). Samherji CEO steps aside while investigations are ongoing. www.samherji.is. Published by [email protected] Samherji (2020a). Samherji’s Namibia investigation finalized . Samherji Ice Fresh Seafood. Website https://www.samherji.is/en/moya/news/samherjisnamibia-investigation-finalized. Published by [email protected] Samherji (2020b, September 25). Fees for quotas were in line with market prices in Namibia. Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, [email protected] Samherji (2021, June 22). Statement and apology from Samherji. Samherji Seafood. www.samherji.is. Sanger, S. W., Duke, E. A., James, D. M., & Hernandez, E. (2017, April 10). Independent directors of the board of wells Fargo & Company: Sales practices investigation report, 113pp. https://www08.wellsfargomedia.com/assets/pdf/ about/investor-relations/presentations/2017/board-report.pdf. Downloaded September 7, 2018. Shepardson, D., & Burden, M. (2014, February 13). GM recalls 778K cars to replace ignition switches after fatal crashes. Detroit News. https://infoweb. newsbank.com/apps/news/document-view?p=AWNB&t=&sort=YMD_ date%3AA&maxresults=20&f=advanced&val-base-0=ignition%20switch% 20failure&fld-base-0=alltext&bln-base-1=and&val-base-1=GM&fld-base1=alltext&bln-base-2=and&val-base-2=cobalt&fld-base-2=alltext&bln-base3=and&val-base-3=2014&fld-base-3=YMD_date&bln-base-4=and&valbase-4=learned&fld-base-4=alltext&docref=news/14BF79CC1AB3B180 Sutherland, E. H. (1949). White collar crime. Holt, Rinehart & Winston. Sutherland, E. H. (1983). White collar crime: The uncut version. Praeger. Zhong, R., & Robinson, S. L. (2021). What happens to bad actors in organizations? A review of actor-centric outcomes of negative behavior. Journal of Management, 47 (6), 1430–1467. Windsor, D. (2022). Aligning MNEs with SDGs: Peace, justice and strong institutions. In J. R. McIntyre, S. Ivanaj, & V. Ivanaj (Eds.), The role of multinational enterprises in supporting the United Nation’s SDGs. Edward Elgar Publishing.

2 Violations of the Social License

This chapter expands scholarly definitions regarding the concept of corporate social license to operate, such as the social license being “a social construction to which various stakeholders contribute” (Baba et al., 2021: 248), before moving into the danger of violating the license. Violations are exemplified by cases derived from corporate investigation reports. The investigation reports indicate that wrongdoing might have occurred that does not represent crime, but the deviance that has threatened the social license. To define the concept and highlight the scholarly potential of the theme of social license violation, a number of focused illustrative case studies are introduced. These include the Danish clothing firm Bestseller, which withdrew from longstanding production of its garments in Myanmar following socio-political pressure, Norway’s largest housing developer OBOS, that operated under the value banner of ordinary homes for ordinary people, and the Icelandic seafood giant, Samherji, that was revealed to have obtained fishing rights outside the coast of Namibia in Africa through bribery. Traditionally, white-collar and corporate crime research has focused on the role of the criminal justice system in prosecuting and punishing offenders and offenses. The frequent lack of prosecution and punishment © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_2

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has been explained by various theoretical perspectives that reflect the legal license to operate. However, the emerging perspective of the social license to operate illustrates punishment for violations that can cause termination of executives, market loss, and other serious harm to individuals and firms. This chapter presents three case studies where fraud examiners reviewed the legal license when the social license was ignored. There is an interesting avenue here for future white-collar and corporate crime research in distinguishing between punishment from violations of the legal license and punishment from violations of the social license to operate. Surprisingly often, fraud examiners conclude with misconduct but no crime in their internal investigations of suspected white-collar and corporate offenses (Gottschalk, 2016, 2020, 2021). Fraud examiners are in the business of reconstructing past events and sequences of events when there are allegations and suspicions of financial crime such as corruption and embezzlement (King, 2012, 2020, 2021; Meerts, 2020, 2021). Investigation conclusions of misconduct but no crime implies that the client organizations did not violate the legal license to operate. The legal license refers to laws that describe wrongdoing and punishment (Haines et al., 2022; Sale, 2021). However, fraud examiners often identify misconduct and wrongdoing that represents violations of the social license to operate. Rather than punishment by the criminal justice systems, violations of the social license from wrongdoing lead to punishment by the local community and relevant stakeholders, where such punishment seems to grow in importance for accused enterprises (Baba et al., 2021; Haines et al., 2022; Hurst et al., 2020; Sale, 2021). Therefore—even when fraud examiners find that the legal license was obviously not violated—accused enterprises tend to change their business practices as a response to organized criticism to avoid harm to the business. This chapter reviews fraud investigation reports and their consequences to provide insights into violations of the social license to operate. The current research is important, as the emerging stream of social license literature can illustrate that although white-collar and corporate crime suspicions tend to avoid the attention of the criminal justice

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system (Gottschalk & Gunnesdal, 2018; Gottschalk & Tcherni-Buzzeo, 2017) as emphasized a long time ago by Sutherland (1939, 1983) when discussing the murky boundary between illegal and legal corporate practices, there are nevertheless consequences for offenders from external reactions that can harm and potentially threaten enterprise existence. In fact, the threat of sanctions from powerful stakeholders might in the future become more frightening than the threat of traditional criminal prosecution.

The Social License to Operate The social license refers to “the acceptance or approval by the local – if not indigenous – communities and stakeholders of a business enterprise’s operations or projects in a certain area” (Saenz, 2019: 297). The social license is “the set of demands and expectations held by local stakeholders and broader society about how a business should operate”, and “a license is then said to be granted if the business is deemed to have met these demands and expectations – and thus is viewed as being socially acceptable” (Hurst et al., 2020: 1). The social license can be defined as “a social construction to which various stakeholders contribute” (Baba et al., 2021: 248). The social license is an expression “often used in the context of a possible disapproval of their activities, when such disapproval may result in resistance that could harm business interests”, and the term “refers to mainly tacit consent on the part of society toward the activities of the business” (Demuijnck & Fasterling, 2016: 675). According to Rooney et al. (2014: 209), a social license refers to “an informal agreement that is granted by communities and relevant stakeholders to an organization or industry working in the local area”: Organizations holding a social license may not even recognize they have one. However, when a social license is removed it becomes obvious to all, incurring both human and economic costs that sometimes can be irreparable.

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Haines et al. (2022: 184) examined “how social control in the form of community pressure might be used to control corporate harm and shape business conduct in a more socially responsible direction”. They suggested a social license to civilize, control, or repel corporate activity. They defined a social license as acceptance of a business or business activity within a particular community. The social license adds to the legal license to operate business activities. The social license is predominantly centered on social permission for business activity where the media, social movements, and citizen watchdogs exert pressure, demand change, and bring enterprises to account. The social license is a visible manifestation of a commitment to corporate social responsibility regarding agreement between company and community in business operations. Similarly, Sale (2021) defined social license as the acceptance of a business or organization by the relevant communities and stakeholders, and Cui et al. (2016: 775) referred to the social license to operate as “a community’s acceptance or approval of a specific company project or of the entire company’s ongoing operations in the community”. Melé and Armengou (2016) referred to social license as the acceptance of the expansion of profit-seeking business that can affect community life. The rise of social media, non-government organizations, as well as the knowledge level among citizens has led to the strengthening of stakeholder demands (Panda & Sangle, 2019: 1085): As a result, firms often find themselves in conflicts. The cost of these conflicts for the firm is the opportunity cost of future projects due to loss of reputation, and for the stakeholders, it is the loss of opportunities, both social and economic, that could be brought by the projects. The tension between firms and stakeholders creates a dynamic environment where following compliance is not enough, and social acceptance is equally important as government licenses. Such an acceptance is termed as ‘social license to operate’ (SLO). SLO exists when a project is seen as having the broad, ongoing approval and acceptance of society to conduct its activities.

The value of a social license lies both in the defensive as well as the offensive dimensions. The defensive dimension is concerned with avoiding criticism and obstacles in business activities from skeptical

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representatives of the community. Executives do not like bad press and activist campaigns, and they want to avoid consumer reactions. Companies do not want critical attention from various supervisory authorities, and they avoid becoming negative topics in municipal committees and government agencies. Companies want a social license that can “prevent demonstrations, boycotts, shutdowns, negative publicity, and the increases in regulation that are a hallmark of publicness” (Sale, 2021: 820). The defensive dimension is a matter of violation of the license or even loss of the license. Such circumstances “can lead to serious delays and costs for organizations, reduced market access, boycotts or protests, community anger, increased regulations, loss of reputation, and, in extreme instances, the failure of a project, organization and/or industry” (Hurst et al., 2020: 1). For example, in the Netherlands, the loss of the social license to operate caused Groningen gas to stop its operations making substantial volumes of gas being left in the ground (Beukel & Geuns, 2019). The offensive dimension of social license value is concerned with benefits and advantages in business activities from supportive and enthusiastic representatives of the community. Executives do like favorable press, and they enjoy consumers’ expression of satisfaction. Companies want positive attention—or no attention—from various supervisory authorities, and they avoid becoming topics in municipal committees and government agencies, unless they are called upon as resources to solve state problems. As a resource, an enterprise can be an enabler of solutions preferred by politicians that they cannot accomplish without the help of the enterprise. Ideally as a resource, the enterprise has unique expertise in the field that can be applied to solve problems perceived as challenging in the community. The value of social dimension in the offensive dimension includes “the generation of legitimacy, trust, and credibility among stakeholders; improved corporate reputation; long-term business success; ongoing access to resources; improved market competitiveness; strengthened stakeholder relationships; and positive effects on employees” (Hurst et al., 2020: 1). The social license to operate can be understood from the perspective of social control theory linked to business ethics (Chamlin, 2009; Hoffmann, 2002; Kane, 2003; Onna & Denkers, 2019). Social control

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is based on attachment, commitment, involvement, and belief, where a control mechanism is an informal punishment in the appearance of shaming (Amry & Meliala, 2021). The legal and social licenses have connections to the concepts of formal and informal controls where formal controls can result in compliance while informal controls can result in conformance. Social control agents might have the legitimate authority to define specific conduct as right and wrong. In the social control perspective, “studies consistently demonstrate that regulations and sanctions directed against the firm can discourage offending” and result in compliance and conformance (Rorie et al., 2015), where conformance refers to meeting and potentially exceeding societal and other informal norms and obligations. Conformity characterizes voluntary actions that constitute a response to social and normative expectations (Durand et al., 2019) that sometimes can lead to overcompliance (Rorie, 2015) as illustrated in the first of the following three case studies.

Corporate Investigation Reports The three case studies are based on fraud examinations by corporate investigators that became public knowledge by media reports. When there is suspicion of financial misconduct and crime in public and private organizations, the organizations tend to hire corporate investigators to conduct fraud examinations. Corporate investigators are assigned the task of reconstructing past events and sequences of events. Assignments have a mandate addressing questions such as: What happened or did not happen? When did it happen? Who did what to make it happen or not happen? Why did it happen? Investigators conduct interviews, read documents, and search other information sources for potential answers (Button et al., 2022; Gottschalk, 2020; King, 2020; Meerts, 2020; Wood, 2020). Fraud examinations by corporate investigators are a form of alternative policing where corporate investigators rather than police detectives work to establish facts in contractual relationships with client organizations that are requesting answers. It is often not a form of privatization of law

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enforcement as corporate investigators take on the task of establishing facts outside the criminal justice system. The perspective of alternative policing is a shift from the public sphere toward the private sphere across the policing landscape (Hamerton & Hobbs, 2022; Stenström, 2018; White, 2020). Corporate investigators normally document their work in fraud examination reports. The business of corporate investigations has become an industry with accounting firms, audit firms, law firms, consulting firms, and independent forensic examiners. Their business model is to apply knowledge to negative client situations to establish answers to questions that they are paid to address. The remuneration for examination work is normally based on time spent and expenses involved in the search for answers (King, 2021). The outcome of fraud examinations ranges from no consequences at all to dramatic life events for accused individuals and organizations. Sometimes suspects suffer harm even when corporate investigators found no evidence of wrongdoing. During fraud examinations, individuals who are subject to scrutiny may experience uncertainty, isolation, and negative media attention. Despite serious consequences for many individuals, corporate investigators are allowed to operate in whatever way they like as long as the clients are happy with the work and pay for it. Private investigators are in an unregulated industry where only statutes from their basic business apply, such as client-attorney privileges and rules for certified accountants. Adding to the problematic role of private examiners as emphasized earlier by Williams (2005) and Schneider (2006) is the secrecy of corporate investigation reports (Gottschalk & Tcherni-Buzzeo, 2017). The need for research to study the performance of corporate investigators is thus obvious as their potential malpractice can harm innocent individuals and entities in democratic societies that assume fairness. Researchers in many countries have studied fraud examinations by corporate investigators. In Australia, King (2021) focused on attributes of corporate investigators that might enable successful fraud examinations. In Canada, Schneider (2006) explored the role of private sector investigative agencies in combating money laundering. In the Netherlands, Meerts (2021) studied the struggles of cooperation in

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public–private relations in the investigation of internal financial crime. In Norway, Gottschalk (2020) evaluated fraud examination reports after corporate investigations by application of a maturity model. In the United Kingdom, Button (2020) studied the new private security industry, the private policing of cyberspace, and the regulatory questions. Rather than reporting financial crime suspicions to the police and thereby being dependent on the priorities and discretion of the criminal justice system, both public and private organizations have access to alternative policing in the form of internal examinations by external corporate investigators. Investigation reports are the result of internal examinations where procedures and findings are described.

Case: Bestseller Garments in Myanmar The first fraud investigation report to be reviewed here was written by Danish law firm Offersen Christoffersen for the company Bestseller that operated 2700 branded chain stores across 38 markets worldwide, and their products were sold in 15,000 multi-brand and department stores. Some of the garments were produced in Myanmar also after the military coup in the country. Bestseller faced serious criticism (Einarsdottir, 2021) including negative comments from the Danish foreign minister (Ritzau, 2021): The military is in power in Myanmar. According to the UN report, factories that Bestseller uses are effectively owned by the military. Two of the factories used by Danish clothing giant Bestseller in Myanmar in recent years are cooperating with the military in the country, according to a UN report. And this could have consequences, Denmark’s foreign minister Jeppe Kofod told the newspaper. He is greatly exasperated by the cooperation. -I would like to make it quite clear that I think it is highly problematic if Bestseller chooses to have clothes produced in factories controlled by the military dictatorship in Myanmar, according to the UN, he told the newspaper.

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Bestseller also faced serious criticism from the clothing and fashion industry that could harm the company’s outlets and their brands (Einarsdottir, 2021): Bestseller receives criticism for alleged military connections in crisisstricken Myanmar. The Danish fashion giant Bestseller is once again in bad weather. This time it is due to their connections in crisis-hit Myanmar. Bestseller, which owns about twenty fashion brands such as Vero Moda, Only and Jack & Jones, produces at three factories in the industrial zone Ngwe Pinlae outside the city of Yangon. A report from 2019 to the UN Human Rights Council points out that the zone is controlled by the industrial conglomerate Myanmar Economic Holdings Limited (MEHL). Their owners consist of the military and individuals in the military leadership, among them chief of staff Min Aung Hlaing who is mainly responsible for the recent bloody attacks on civilians in the country where over 700 people have been killed, writes Fashion Forum.

However, Bestseller kept its legal license to operate as the fraud examiners made an assessment that the company did not violate any sanctions against the Myanmar regime. In fact, the fraud examiners made the recommendation of continuing procurements in Myanmar because of employment and thus income for poor local citizens (Larsen, 2021a, 2021b; Reed & Nilsson, 2021). The report by Christoffersen and Mikkelsen (2021) was obviously not sufficient to regain the social license since global and local unions were still skeptical to business activities in Myanmar. The only relevant attempt to regain the license seemed to be by not placing new orders in Myanmar. The argument that poor workers and their families would suffer income loss was contradicted by the argument that the well-being of garment workers in the country was not guaranteed. The report by Christoffersen and Mikkelsen (2021) that asserted legal license and attempted to achieve social license was published on May 10, 2021. Since the attempt failed, Bestseller announced on August 27 in the same year that they had stopped their business in Myanmar already, and that they would place no new orders (Bestseller, 2021):

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Following the announcement from IndustryALL Global Union and their Myanmar affiliate, the Industrial Workers Federation of Myanmar (IWEM), Bestseller will not place new orders in the country until an impact assessment and dialogue with experts, NGOs, trade unions and other relevant stakeholders with a clear focus on the wellbeing of garment workers in Myanmar has been conducted.

Because of the criticism, Bestseller was “among the companies that froze orders from the south-east Asian country because of human rights concerns and civil unrest” (Reed & Nilsson, 2021). The following year, Bestseller had still suspended their business in Myanmar (Reed, 2022): In garments, multinational companies such as H&M, Bestseller and Primark brought in supply-chain investors and created jobs, mostly women, during Myanmar’s decade of democratic transition, which ended with a coup. While some have suspended their Myanmar operations, others are quietly still buying.

The EU imposed “sanctions against almost two dozen Myanmar government and military officials as well as a state-backed oil and gas group” (Meixler and Creery, 2022). Bestseller headquartered in Denmark did indeed want to resume business in Myanmar again (Larsen,), but regaining the social license was more important to the firm (Reed & Nilsson, 2021).

Case: Obos Housing in Norway The second fraud investigation report to be reviewed here was written by audit firm KPMG for the cooperative Obos that is Norway’s largest housing developer. Obos engages in the development and sale of homes and properties as well as property management and real estate brokerage. Obos is a cooperative member organization with half a million members. The cooperative was established in 1929 to provide a solution to housing shortages for low-income families in the capital of Oslo. After World War II, Obos played an important role of building apartment blocks on the east side of Oslo. The rich people live on the west side of Oslo, while

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the less fortunate live on the east side of the city center. Apartments were affordable for poor families as Obos required minimal deposits and favorable loans (Oesterud, 2016). To be qualified to buy the most attractive Obos apartments, buyers had to document membership for several decades when moving into the 1950s, 1960s, and 1970s. There was a strong social profile in all Obos operations that granted management both a legal and a social license to operate (Holm, 2021). The social license was violated by management when they started to build extremely expensive apartments and sold apartment buildings to landlords (Jacobsen, 2020; Lorch-Falch & Tomter, 2021). Members reacted to the deviations but discovered that they had no saying. They wrote newspaper articles about the change away from the basic vision and mission of the cooperative (Holm, 2021; Stang, 2021). Members argued that Obos had lost its soul (Hegtun, 2021). The revolt included demonstrations in front of the Obos headquarters with the demand from members that the cooperative was ours (Sørgjeld, 2021). The revolt leader requested that the chief executive be removed from his position (Lorch-Falch et al., 2021). Some protesters suggested that executives suffered from megalomania which refers to a mental disorder characterized by an excessive increase in attention to one’s own person (Lundgaard & Sørgjeld, 2021). Protesters disliked the comradely tone between elite members who supposedly negotiated with each other (Lorch-Falch & Tomter, 2021). As a reaction to the criticism, the Obos board hired fraud examiners from KPMG (2021) to review the allegations. However, similar to the Bestseller investigation, fraud examiners only reviewed whether or not the legal license had been violated. The examiners concluded that the recent transactions with rich people did not violate rules and regulations at Obos since it constituted only a minor part of the overall business. Revolt leaders in the Obos membership were not happy with the legal review. Member allegations of social license violations by Obos management in their operations were still concerned with four issues: 1. The mission and vision of Obos is to secure pleasant and affordable housing for members of the cooperative. They should build ordinary homes for ordinary people. It was a violation of the cooperative

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purpose to sell two complete residential buildings with many apartments to a landlord whose business purpose is to make money by renting the apartments to tenants. 2. The sales price achieved in the anti-purpose transaction was below market value as estimated by Norwegian kroner per square meter. Obos thus suffered a loss compared to selling each apartment separately to its members. The giveaway price and the following loss seemed caused by close personal relationships between individuals on the seller and the buyer sides, as exemplified below. 3. There was a close relationship and comradely tone between the CEO at Obos and the representative of the buyer causing impartiality in connection with the sale of the apartment blocks. The two privileged persons communicated directly with each other about the transaction with minor involvement of governance bodies at Obos. 4. There was also a close relationship between the executive vice president in charge of housing development at Obos and the relevant family members who invested in the purchase of the apartment blocks. The vice president’s impartiality was not at all trustworthy, and he was too late removed from his involvement in the transaction. One of the community revolt leaders posted on his blog as to why the social license was lost as the issues above illustrate that Obos is no longer a member-governed cooperative institution. He mentioned a number of incidents in addition to those listed above, such as favoring employees in the Obos organization at the expense of other members, demonstrating arrogant executive behavior, and granting hunting rights to privileged individuals. The revolt leader wrote that the members are the true owners of the cooperative (Larsen, 2021a, 2021b): Obos is owned by the members. The members exercise their corporate governance through the general assembly meeting and the elected general meeting representatives. Put at the forefront are the board and administration who are servants of the owners. More nuanced, we can state that the board and administration must ensure that they act in accordance with the owners’ wishes. In this context, several of the above issues are relevant: The reason why they have created attention and engagement is

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obviously that they are perceived as controversial. It could have been okay if the positions taken were rooted in the members, but they were not.

It was obvious that Obos management intended never again to repeat the criticized transactions. Furthermore, member involvement was enhanced by establishing a new organizational structure that would give members a real chance of influence. A democratization process started in 2022. Furthermore, company representatives learned that an a priori assertion of their legal right to manage properties freely would be met with anger and defiance. Relying on their legal rights was seen as arrogant and likely to lead to another member uproar. To offer ordinary homes to ordinary people while the prices in the capital Oslo were still very high and often a barrier to entry, Obos introduced a new financial model caused by the member revolt. According to the new model, Obos offers members the option of buying half of the apartment and rent the other half from Obos. Over time, the member has the option of increasing ownership share from fifty percent by down payments to Obos at the discretion of the owner’s financial situation (Lundgaard, 2022).

Case: Samherji Fishing in Namibia The third fraud investigation report to be reviewed here was written by law firm Wikborg Rein for the seafood company Samherji in Iceland (Kibar, 2020a, 2020b). According to a whistleblower, Samherji had bribed government officials to obtain fishing rights on the west coast of Namibia (Cotterill, 2019; Kleinfeld, 2019, 2020, 2021; Menges, 2020). While Samherji denied disclosure of the complete investigation report, they admitted that corruption had taken place. However, their initial account was that a bad apple in the organization locally was responsible without any knowledge or involvement on the part of the company (Samherji, 2019a, 2019b, 2020a, 2020b). Thereby the firm attempted to keep the legal license (Seljan et al., 2019). The legal license was challenged when Namibian officials requested Samherji executives to

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appear in court to be prosecuted for the corruption together with local government ministers (Ciric, 2022). The late apology statement by Samherji (2021b) was probably not enough for regaining the social license to operate. Media reports had emphasized not only reputation damage to the company but also to Iceland (Bjarnadóttir, 2020: 34): Prime minister, Katrin Jakobsdóttir, said to Mbl “that if allegations against Samherji are substantiated, it is a matter of great concern for the Icelandic economy and shame for Samherji. The issue can affect the nation as a whole”. In the same article, it is stated that Iceland was placed on the grey list of the FATF, an international working group on measures against money laundering and terrorist financing, almost a month ago. Katrin says then that being on the list is disappointing and that she has concerns about our reputation but states that Samherji’s case “is not descriptive of Icelandic society as a whole”.

According to Reuters (2019), Samherji had transferred more than $70 million through a shell company in the tax haven Marshall Islands from 2011 to 2018. Samherji transferred the money through bank accounts in DNB Norway. The bank’s largest shareholder is the Norwegian state, which holds a 34% stake in the bank (Reuters, 2019): The money consisted partly of proceeds from Samherji’s questionable and possibly unlawful operations in Namibia where the company bribes officials to get secure access to fishing quotas. The company in the Marshall Islands was used to pay salaries to the crews of Samherji’s factory trawlers. These trawlers fished horse mackerel in Mauritania, Morocco, and Namibia.

It would indeed be a challenge for Samherji to regain its social license to operate. The national reputation problem added to the challenge. Stakeholders abroad might remember the banking collapse in Iceland, where greedy Icelanders were in the lead roles. The Panama Papers revealed that wealthy Icelanders had the world record in the number of offshore accounts relative to the number of citizens (Bjarnadóttir, 2020).

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Things became worse rather than better in the following years for Samherji. A chief financial officer at Samherji said in court that bribery payments in Africa are necessary. Brynjar Thorsson, chief financial officer at Samherji in the Canari Islands, who was involved in payments to Namibian politicians, said that bribery payments were standard in Africa. This was revealed during the interrogation of Thorsson, who had the status of witness in the Samherji investigation at the district prosecutor’s office in Iceland. Thorsson said that Samherji had used the same methods to obtain quotas in Morocco as in Mauritania, before the company started fishing in Namibia (Seljan & Vilhjalmsson, 2022). The district prosecutor’s office in Iceland had 7 defendants that they were still investigating before considering prosecution (Juliusson, 2021): Jon Ottar Olafsson, a consultant and former detective who has worked for Samherji for years, was called in for questioning by the district prosecutor’s office recently for its investigation into alleged bribery, tax avoidance and money laundering by Samherji in connection with the group’s operations in Namibia. During those hearings, Jon Ottar was given the legal status of the defendant in the case. That means at least seven people have been given such status during interrogations at the office since their first round began last summer. Kjarninn revealed exactly one year ago that Torsteinn Mar Baldvinsson, CEO of Samherji, was among six individuals who were granted the legal status of the defendant in the case at a hearing in July 2020. The five people who were then called in for questioning and were granted the legal status of the defendant were Ingvar Juliusson, chief financial officer of Samherji in Cyprus, Arna McClure, Samherji’s general counsel and consul of Cyprus in Iceland, Egill Helgi Arnason, managing director of Samherji in Namibia, and Johannes Stefansson.

Johannes Stefansson was the managing director of Samherji in Namibia for a time but played a key role in revealing alleged bribery payments, money laundering, and tax avoidance by Samherji. He contributed to the coverage of the scandal in news media such as the Icelandic national broadcasting service RUV, the Icelandic newspaper Stundin, and the Al Jazeera broadcasting company. They published

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the Icelandic corruption story first time in November 2019 (Juliusson, 2021). The strategy to regain the social license to operate seemed to have two components at Samherji, secrecy and accusations, respectively. The secrecy was concerned with the critical findings in the Wikborg Rein report that were never disclosed. Accusations were concerned with people who critically reviewed Samherji’s corporate behavior related to corruption. When investigative journalist Helgi Seljan at the public broadcasting company in Iceland reported critically about Samherji in Iceland, chief communications officer at Samherji, Margrét Ólafsdóttir, performed an attack on the journalist. Ólafsdóttir reported Seljan to the broadcasting service’s ethics committee (Samherji, 2021a). When Johannes Stefansson blew the whistle on Samherji, Margrét Ólafsdóttir formulated an attack on him for being a bad apple in the organization locally (Samherji, 2019a). Ólafsdóttir formulated the following threat to me as the author of this book in her email on October 7, 2020: “We are of course prepared to address such allegations in appropriate fora should this become necessary and prudent”. Reporting and attacking skeptics is in line with the neutralization perspective of condemning those who criticize. The neutralization technique to remove guilt feelings and blame others is widely cited in the research literature (Cullen et al., 2021; Jordanoska, 2018; Kaptein & Helvoort, 2019; Lagios et al., 2021; Sims & Barreto, 2021; Siponen & Vance, 2010; Sykes & Matza, 1957). Condemning those that criticize is a matter of claiming that 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 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 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. The accuser or investigator lacks credibility (Sims & Barreto, 2021).

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Effective Informal Social Control This chapter explores the alternatives to criminal prosecution used in white-collar crime-related investigations conducted for companies using the concept of the social license. It uses three case studies from investigations by fraud examiners to illustrate this. The research should offer some unique insights into consequences of the social license to operate. This chapter intended to show that social reactions to unethical corporate practices can lead to punishments that can harm and potentially threaten enterprise existence. However, the chapter does not present sufficient evidence of harm as it does not describe the punishments and harms experienced by the three organizations. Rather, contrary to the punishment argument, the evidence presented indicates that the consequences of the public reactions have been positive in benefiting the organizations. Public criticism is an informal social control that has led to positive adjustments to the organizations’ business practices, which improved their business models, enhanced their ethical climates, and strengthened their social licenses. This is a positive consequence, not a negative punishment. This is an important message and can be linked to the business ethics scholarship. Corporate social responsibility is increasingly regarded as a valuable business asset that supports business performance. All three case studies help illustrate the shortcomings of only legal perspectives in the work of fraud examiners when conducting internal investigations for client organizations. Bestseller headquartered in Denmark was dependent on the social license to operate and therefore terminated its business in Myanmar. Obos in Norway was dependent on member acceptance and will therefore avoid deviance from their basic idea of social housing. Samherji in Iceland was dependent on local acceptance by the government as well as citizens in the country and therefore made an apology for corruption, although without accepting the blame. Anecdotal evidence from these three investigation reports illustrates the emerging perspective of the social license to operate becoming important. It seems not sufficient anymore for acceptance of business practice simply based on legal perspectives. In knowledge societies such as Denmark, Norway, and Iceland, citizens do not trust the criminal

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justice system to the extent that all forms of wrongdoing are covered in statutes, and that all incidents of wrongdoing are prosecuted. In a criminological perspective, crime is defined by two characteristics. The first is that an incident is wrong. The second is that an incident should be punished. Crime is then wrongdoing that requires punishment, while law is statutory principles, which may or may not cover the specific wrongdoing. In this line of reasoning, Friedrichs (2020: 19) mentioned the humanistic definition of crime: A humanistic definition of crime focuses on demonstrable harm, more often than not coming from powerful elements of society, rather than legal status as the basis for something being designated a crime.

Perceived seriousness has been studied as a factor that can influence the involvement or lack of involvement of the criminal justice system in cases of white-collar and corporate crime. For example, Cullen et al. (2020) studied public opinion about white-collar crime, and they found public willingness to punish white-collar offenders. However, they found that public opinion about inflicting punishment on white-collar criminals varies depending on clarity of culpability, typical harm, violation of trust, and need to show equity. Sources of authority for assessing violations of the social license to operate can then apply different criteria when determining the seriousness of wrongdoing. Some studies in Europe have shown that the public apply criteria that regard corporate criminality as a very low enforcement priority (e.g., Andriaenssen et al., 2020). 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. There are important implications of perspectives presented in this chapter for future fraud examinations as well as corporate crime research. Fraud examiners might look beyond legal issues when conducting internal investigations in client organizations, as the reasons for harm and punishment might be found in social issues. Similarly, corporate crime research might consider punishment beyond the criminal justice system of prison and fine by looking at executive terminations and changes in business practices.

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Studies as well as examinations of white-collar and corporate crime tend to apply the legal definition of crime where corporate escape from allegations and accusations is assumed if there is no involvement of the criminal justice system. The emerging perspective of a social license to operate tells a different story. As illustrated by three case studies in this chapter, violations of the social license do have consequences. There is an interesting avenue here for future white-collar and corporate crime research in distinguishing between punishment from violations of the legal license and punishment from violations of the social license to operate where perceived seriousness can be introduced as an important factor. There is also an interesting avenue here for fraud investigation research where the question is whether the remit of fraud examiners is too narrow: Would corporate managers be better advised if fraud examiners and corporate investigators broadened their remit to consider the social license to operate? Finally, the context of the presented cases is all in open countries generally seen as clean: Denmark, Norway, and Iceland. It would be interesting to explore the applicability of this to countries further down the league tables of cleanliness.

References Alcadipani, R., & Medeiros, C. R. O. (2020). When corporations cause harm: A critical view of corporate social irresponsibility and corporate crimes. Journal of Business Ethics, 167 , 285–297. Amry, M. A., & Meliala, A. (2021). Lifestyle-related shaming: The significance of reintegrative shaming on drug relapse offenders in Indonesia. Journal of Social and Political Sciences, 4 (1), 145–153. Andriaessen, A., Paoli, L., Karstedt, S., Visschers, J., Greenfield, V. A., & Pleysier, S. (2020). Public perceptions of the seriousness of crime: Weighing the harm and the wrong. European Journal of Criminology, 17 (2), 127–150. Baba, S., Hemissi, O., Berrahou, Z., & Traiki, C. (2021). The spatiotemporal dimension of the social license to operate: The case of a landfill facility in Algeria. Management Internationl – Mi, 25 (4), 247–266. Bestseller (2021, August 27). Not placing new orders in Myanmar. Bestseller. www.bestseller.com

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Beukel, J., & Geuns, L. (2019). Groningen gas: The loss of a social license to operate. Hague Centre for Strategic Studies. Bjarnadóttir, S. M. (2020, September 15). Iceland’s involvement in bribes and corruption in Namibia’s fishing industry—Discourse analysis of the media [Master thesis in culture communication and globalization]. Aalborg University. Button, M. (2020). The “new” private security industry, the private policing of cyberspace and the regulatory questions. Journal of Contemporary Criminal Justice, 36 (1), 39–55. Button, M., Kapend, R., & Stiernsted, P. (2022). Investigative private policing beyond the police: An exploratory study. Policing & Society. https://doi.org/ 10.1080/10439463.2022.2071894 Chamlin, M. B. (2009). Threat to whom? Conflict, consensus, and social control. Deviant Behavior, 30, 539–559. Christoffersen, J., & Mikkelsen, M. S. (2021, May 10). Redegjørelse: Bestseller A/ S’ samfundsansvar i Myanmar (Statement: Bestseller Ltd.’s Social Responsibility in Myanmar). Law firm Offersen Christoffersen, 122pp. Ciric, J. (2022, February 21). Namibia requests Interpol’s aid in extraditing former Samherji executives. Iceland Review. www.icelandreview.com Cotterill, J. (2019, November 14). Two Namibian ministers resign in Icelandic fishing scandal. Financial Times. www.ft.com Cui, J., Jo, H., & Velasquez, M. G. (2016). Community religion, employees, and the social license to operate. Journal of Business Ethics, 136 , 775–807. Cullen, F. T., Chouhy, C., & Jonson, C. L. (2020). Chapter 14: Public opinion about white-collar crime. In M. L. Rorie (Ed.), The handbook of white-collar crime (pp. 211–228). Wiley & Sons. Cullen, F. T., Graham, A., Jonson, C. L., PIckett, J. T., Sloan, M. M., & Haner, M. (2021). The denier in chief: Faith in Trump and techniques of neutralization in a pandemic. Deviant Behavior. https://doi.org/10.1080/01639625. 2021.1918035 Demuijnck, G., & Fasterling, B. (2016). The social license to operate. Journal of Business Ethics, 136 , 675–685. Durand, R., Hawn, O., & Ioannou, I. (2019). Willing and able: A general model of organizational responses to normative pressures. Academy of Management Review, 44 (2), 299–320. Einarsdottir, I. E. (2021, April 20). Bestseller får kritikk for påståtte militærforbindelser i kriserammede Myanmar (Bestseller receives criticism for alleged military connections in crisis-stricken Myanmar). Fashion industry magazine Melk & Honning. www.melkoghonning.no

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Friedrichs, D. O. (2020). Chapter 2: White collar crime: Definitional debates and the case for a typological approach. In M. Rorie (Ed.), The handbook of white-collar crime (pp. 16–31). John Wiley & Sons. Gottschalk, P. (2016). Private policing of financial crime: Key issues in the investigation business in Norway. European Journal of Policing Studies, 3(3), 292–314. Gottschalk, P. (2020). Private policing of white-collar crime: Case studies of internal investigations by fraud examiners. Police Practice and Research, 21(6), 717–738. Gottschalk, P. (2021). Private policing of economic crime—Case studies of internal investigations by Fraud Examiners. Routledge. Gottschalk, P., & Gunnesdal, L. (2018). White-collar crime in the shadow economy: Lack of detection, investigation, and conviction compared to social security fraud . Palgrave Pivot, Palgrave Macmillan, Springer Publishing. Gottschalk, P., & Tcherni-Buzzeo, M. (2017). Reasons for gaps in crime reporting: The case of white-collar criminals investigated by private fraud examiners in Norway. Deviant Behavior, 38(3), 267–281. Haines, F., Bice, S., Einfeld, C., & Sullivan, H. (2022). Countering corporate power through social control: What does a social licence offer? The British Journal of Criminology, 62, 184–199. Hamerton, C., & Hobbs, S. (2022). Privatising criminal justice: History, Neoliberal penality and the commodification of crime. Routledge. Hegtun, H. (2021, June 12). Granskere har gått inn i PC-en og telefonen hans. «Helt greit», sier presset Obos-sjef (Investigators have entered the PC and his phone. “Quit all right”, says the pressured Obos boss). Weekly magazine A-magasinet. www.aftenposten.no Hoffmann, J. P. (2002). A contextual analysis of differential association, social control, and strain theories of delinquency. Social Forces, 81(3), 753–785. Holm, E. D. (2021, June 21). Er Obos løsningen eller problemet? (Is Obos the solution or the problem?). Daily Norwegian newspaper Aftenposten. www.aft enposten.no Hurst, B., Johnston, K. A., & Lane, A. B. (2020). Engaging for a social license to operate. Public Relations Review, 40. https://doi.org/10.1016/j.pubrev. 2020.101931 Jacobsen, S. (2020, December 3). Har solgt 182 leiligheter for 936 millioner (Have sold 182 apartments for 936 million). Daily Norwegian business newspaper Finansavisen. www.finansavisen.no

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Jordanoska, A. (2018). The social ecology of white-collar crime: Applying situational action theory to white-collar offending. Deviant Behavior, 39 (11), 1427–1449. Juliusson, T. S. (2021, September 3). Jon Ottar has the legal status of the defendant in the Samherji Case. Iceland newspaper The Morning Post. www. kjarninn.is Kane, R. J. (2003). Social control in the metropolis: A community-level examination of the minority group-threat hypothesis. Justice Quarterly, 20 (2), 265–295. Kaptein, M., & Helvoort, M. (2019). A model of neutralization techniques. Deviant Behavior, 40 (10), 1260–1285. Kibar, O. (2020a, August 8, Saturday). Varsleren (The whistleblower). Daily Norwegian business newspaper Dagens Næringsliv, pp. 32–37. Kibar, O. (2020b, September 1, Tuesday). Både ryddet opp for og gransket fiskerikjempe (Both cleaned up and investigated fishing giant). Daily Norwegian business newspaper Dagens Næringsliv, pp. 18–19. King, M. (2012). The contemporary role of private investigators in Australia. Criminal Justice Matters, 89 (1), 12–14. King, M. (2020). Financial fraud investigative interviewing—Corporate investigators’ beliefs and practices: A qualitative inquiry, Journal of Financial Crimehttps://doi.org/10.1108/JFC-08-2020-0158 King, M. (2021). Profiting from a tainted trade: Private investigators’ views on the popular culture glamorization of their trade. Journal of Criminological Research Policy and Practicehttps://doi.org/10.1108/JCRPP-07-2020-0050 Kleinfeld, J. (2019, December 1). Anatomy of a Bribe: A deep dive into an underworld of corruption. News organization Al Jazeera. www.aljazeera.com Kleinfeld, J. (2020, July 15). Corruption allegations in Namibian 5G deal with Huawei. News organization Al Jazeera. www.aljazeera.com Kleinfeld, J. (2021, April 2). Namibian president caught in new fishing corruption allegations. News organization Al Jazeera. www.aljazeera.com KPMG. (2021). Ulven-transaksjonen – Granskingsrapport til styret i Obos (The Ulven transaction—Investigation report to the board at Obos). law firm KPMG, 34pp. Lagios, C., Caesens, G., Nguyen, N., & Stinglhamber, F. (2021). Explaining the negative consequences of organizational dehumanization: The mediating role of psychological need thwarting, Journal of Personnel Psychologyhttps:// doi.org/10.1027/1866-5888/a000286

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Larsen, M. (2021, April 21). Danish company Bestseller urges EU to take action on Myanmar. ScandAsia, Nordic News and Business Promotion in Asia. www.scandasia.com Larsen, B. E. (2021, June 19). Noen betraktninger før Obos’ generalforsamling 2021 (Some considerations before Obos’ general assembly 2021). Benjamin E. Larsen’s Blog. www.benjaminlarsen.net Lorch-Falch, S., & Tomter, L. (2021, June 22). Slaget om Obos (The battle of Obos). Public Norwegian broadcasting corporation NRK . www.nrk.no Lorch-Falch, S., Tomter, L., & Engebretsen, D. K. (2021, June 22). Obosopprøret tapte kamp om maktseter (The Obos uprising lost the battle for seats). Norwegian public broadcasting NRK . www.nrk.no Lundgaard, H. (2022, February 24, Thursday). Hun hadde ikke sjanse til å kjøpe leilighet. Nå skal flere tusen få samme muligheten (She had no chance of buying an apartment. Now several thousand will have the same opportunity). Daily Norwegian newspaper Aftenposten, p. 6. Lundgaard, H., & Sørgjeld, C. (2021, June 21). Milliardene renner inn i Obos-kassen. Men mer enn 80 prosent kommer ikke fra boligbygging (The billions are floating into the Obos cash register. But more than 80 percent do not come from housing construction). Daily Norwegian newspaper Aftenposten. www.aftenposten.no Meerts, C. (2020). Corporate investigations: Beyond notions of public-private relations. Journal of Contemporary Criminal Justice, 36 (1), 86–100. Meerts, C. (2021). Struggles in cooperation: Public-private relations in the investigation of internal financial crime in the Netherlands. In N. Lord, E. Inzelt, W. Huisman, & R. Faria (Eds.), European white-collar crime: Exploring the nature of european realities. Bristol University Press. Meixler, E., & Creery, J. (2022, February 22). EU targets Myanmar’s lucrative energy sector in latest sanctions. Financial Times. www.ft.com Melé, D., & Armengou, J. (2016). Moral legitimacy in controversial projects and its relationships with social license to operate: A case study. Journal of Business Ethics, 136 , 729–742. Menges, W. (2020, August 6). Fishrot lawyer fights to stay on as executor. The Namibian. www.namibian.com Oesterud, T. I. (2016, April 1). The prices for OBOS housing in Oslo increased by 11.5 percent. Norway Today. www.norwaytoday.info Onna, J. H. R., & Denkers, A. J. M. (2019). Social bonds and white-collar crime: A two-study assessment of informal social controls in white-collar offenders. Deviant Behavior, 40 (10), 1206–1225.

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Panda, S. S., & Sangle, S. (2019). An exploratory study to investigate the relationship between social license to operate and sustainable development strategies. Sustainable Development, 27 , 1085–1095. Reed, J. (2022, January 25). Stay or go: The dilemma for multinationals in Myanmar. Financial Times. www.ft.com Reed, J., & Nilsson, P. (2021, May 21). H&M and Primark resume Myanmar orders for first time since coup. Financial Times. www.ft.com Reuters. (2019, November 15). Norway’s DNB investigates allegedly improper Samherji payments to Namibia. Under Current News. www.undercurrent news.com Ritzau. (2021, April 18). Kofod fortørnet over Bestsellers brug af fabrikker i Myanmar (Kofod upset over Bestseller’s use of factories in Myanmar). Danish broadcasting TV2. www.nyheder.tv2.dk Rooney, D., Leach, J., & Ashworth, P. (2014). Doing the social in social license. Social Epistemology, 28(3–4), 209–218. Rorie, M. (2015). An integrated theory of corporate environmental compliance and overcompliance. Crime, Law and Social Change, 64, 65–101. Rorie, M., Rinfret, S., & Pautz, M. (2015). The thin green line: Examining environmental regulation and environmental offending from multiple perspectives. International Journal of Law, Crime and Justice, 43, 586–608. Saenz, C. (2019). Building legitimacy and trust between a mining company and a community to earn social license to operate: A Peruvian case study. Corporate Social Responsibility and Environmental Management, 26 (2), 296– 306. Sale, H. A. (2021). The corporate purpose of social license. Sothern California Law Review, 94 (4), 785–842. Samherji. (2019a, November 11). Statement from Samherji: Press release. Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, [email protected] Samherji. (2019b, November 14). Samherji CEO steps aside while investigations are ongoing. Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, [email protected] Samherji. (2020a, July 29). Samherji’s Namibia investigation finalized . Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, margret@ samherji.is Samherji. (2020b, September 25). Fees for quotas were in line with market prices in Namibia. Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, [email protected]

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Samherji (2021a, March 26). Helgi Seljan found guilty of a serious ethical violation for writing about Samherji. Samherji Seafood. www.samherji.is. Published by margrét Ólafsdóttir, [email protected] Samherji. (2021b, June 22). Statement and apology from Samherji. Samherji Seafood. www.samherji.is. Published by Margrét Ólafsdóttir, margret@ samherji.is Schneider, S. (2006). Privatizing economic crime enforcement: Exploring the role of private sector investigative agencies in combating money laundering. Policing and Society, 16 (3), 285–312. Seljan, H., Kjartansson, A., & Drengsson, S. A. (2019). What Samherji wanted hidden. Kveikur at RUV . Public broadcasting on Iceland. www.ruv.is/kve ikur/fishrot/fishrot Seljan, H., & Vilhjalmsson, I. F. (2022, September 18). Chief financial officer at Samherji says bribery payments in Africa are necessary. Icelandic business magazine Stundin. www.stundin.is Sims, R. L., & Barreto, T. S. (2021). In defense of leader misconduct: The use of neutralization techniques by ingroup members. The Journal of Social Psychology. https://doi.org/10.1080/00224545.2021.1944033 Siponen, M., & Vance, A. (2010). Neutralization: New insights into the problem of employee information security policy violations. MIS Quarterly, 34 (3), 487–502. Stang, F. (2021, June 21). Obos saboterer sitt eget samfunnsoppdrag (Obos sabotages its own social mission). Daily Norwegian newspaper Aftenposten. www.aftenposten.no Stenström, A. (2018). The private policing of insurance claims: Power, profit and private justice. British Journal of Criminology, 58(2), 478–496. Sutherland, E. H. (1939). White-collar criminality. American Sociological Review, 5 (1), 1–12. Sutherland, E. H. (1983). White collar crime—The uncut version. Yale University Press. Sykes, G., & Matza, D. (1957). Techniques of neutralization: A theory of delinquency. American Sociological Review, 22(6), 664–670. Sørgjeld, C. (2021, June 22). På utsiden demonstrerte Obos-opprøret. På innsiden ble de nedstemt (On the outside, the Obos demonstration revolted. On the inside, they were voted down). Daily Norwegian newspaper Aftenposten. www.aftenposten.no White, A. (2020). What is the privatization of policing? Policing: A Journal of Policy and Practice, 14 (3), 766–777.

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Williams, J. W. (2005). Governability matters: The private policing of economic crime and the challenge of democratic governance. Policing & Society, 15 (2), 187–211. Wood, J. D. (2020). Private policing and public health: A neglected relationship. Journal of Contemporary Criminal Justice, 36 (1), 19–38.

3 Institutional Theory Perspectives

A compelling and interesting perspective on the corporate social license is institutional theory, in this chapter. This is utilized to explain how businesses respond to pressure and crisis. Institutional theory assumes that the social context has an important impact on human behavior, while at the same time downplaying the role of strategic responses often found in the management literature. Institutional theory emphasizes conformance that refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019). In its examination of institutional theory, this chapter develops to evaluate traditional strategic responses to pressure and the characteristics and parameters of people institutions, before considering institutional deterioration causing decay and institutional plasticity enabling change. Issues such as business conformance with norms, business compliance with rules, corporate social responsibility, corporate response to normative pressure, and other relevant organizational behaviors for approval and acceptance of business activity are often studied in the perspectives of institutional theory. Institutional theory can provide insights into the corporate social license to operate based on approval and acceptance of

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business activity in society (Brammer et al., 2012; Pedersen et al., 2013; Shadnam & Lawrence, 2011; Smets et al., 2012; Tonoyan et al., 2010). For example, previous research has often applied the institutional theory lens to study the issue of corporate corruption avoidance (Orudzheva et al., 2020; Pillay & Kluvers, 2014; Vadera & Aguilera, 2015). Institutional compliance and conformance can make corruption less convenient and potentially prevent corruption (Kostova et al., 2008; Pinto et al., 2008; Rodriguez et al., 2005). Therefore, this book on the corporate license from normative pressure to operate based on approval and acceptance of society applies institutional theory as implicitly and explicitly suggested by many scholars (e.g., Buhmann, 2016; Cui et al., 2016; Haines et al., 2022; Melé & Armengou, 2016; Panda & Sangle, 2019; Saenz, 2019; Sale, 2021).

Traditional Strategic Responses to Pressure In the management literature, the emphasis is on executives’ decisionmaking in terms of strategic responses to normative pressure. Management analyzes the situation, sets goals to be achieved, and discusses approaches to reach those goals. The chosen strategic approach is then presented and approved by the board. What comes next in strategic management is implementation of the selected approach to reach goals. However, implementation of strategy is a matter of institutional acceptance. If people in the organization and other internal and external stakeholders disapprove of the strategy, it tends never to be implemented. On average, less than half of corporate strategies tend to be implemented. Therefore, as argued by Durand et al. (2019: 314), institutional conformity adaptation and compliance to normative pressure is stronger than “the more traditional list of strategic responses to institutional pressures”. Adapting to the homogeneity pressure rather than creating response strategies seems to be a more successful path to achieve the social license to operate. Pedersen et al. (2013: 358) suggested that three types of pressures promote homogeneity within organizational fields: “coercive (from regulatory bodies or holders of critical resources), mimetic (imitating successful organizations as a standard reaction to

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uncertainty), and normative (resulting from a professionalization of a field)”. Responding to pressures by adaptation is very different from responding by strategy. When responding by strategy, executives believe they can handle the situation by various forms of actual and symbolic means. Window-dressing is a typical example of symbolic means where management claims adherence to pressures without really acting accordingly. At window-dressing, there is no real substance. Window-dressing is the act or the instance of making something appear better than it actually is (Desai, 2016). Institutional theory assumes that the social context has an important impact on human behavior, while downplaying the role of strategic responses (Pedersen et al., 2013: 358): Individuals are not free-floating atoms outside the social context; they shape and, in turn, are shaped by various institutions, i.e. rules, norms, values, routines, habits, and traditions. By ruling on (permitting) some actions and ruling out (forbidding) others, the institutional setting is important in defining what is considered to be legitimate (...) Traditionally, institutional theory has emphasized conformity and compliance while downplaying the role of other strategic responses. Organizations have been expected to adapt to (become isomorphic with) the environment by aligning policies and practices to the dominant societal rules, norms, and routines.

Similarly, Caulfield and Lynn (2022: 3) emphasized the difference between the traditional strategic and organizational response to pressure versus the institutional approach: This institutional focus is in contrast to the now-dominant ‘organizational’ perspective, which primarily speaks to managers on how to effectively and profitably respond to surrounding social conditions.

Some companies believe that they can gain competitive advantage by responding to pressure in smarter ways than others in the industry. This strategic response is risky and can easily lead to failure, if ever implemented. There is always room for competitive advantages in the market

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place, but seldom are such advantages possible from stakeholder pressure. Rather, as emphasized by so many scholars, business conformance is a necessary but not sufficient approach to success in an industry.

Characteristics of People Institutions The term institution can easily be interpreted as a synonym for organization, but it is not. The term institution is much broader than the term organization. An institution is the patterned, mutually shared ways that people develop for living together. It can be a group, a neighborhood, a society, or another kind of sociological entity. An institution is a system of interrelated formal and informal elements—rules, guidelines, norms, traditions, and beliefs—governing relationships between institutional members within which members pursue their mutual interests (Gyõry, 2020). An institution has a social structure of schemes, rules, norms, and routines that become established as authoritative guidelines for social behavior. Opportunities are shaped and restricted by individuals, groups, other institutions as well as society at large (Kostova et al., 2008; Pillay & Kluvers, 2014; Shadnam & Lawrence, 2011). New institutional norms and values are socially constructed entities that can emerge as perceived solutions to problems (Battilana et al., 2022: 239): Practices often become institutionalized when they come to be perceived as solutions that address collective problems, and when, over time, people tend to consider them as the natural order of things, even when they have long ceased to satisfactorily solve any problem. Indeed, practices and structures in organizations reflect myths derived from their social environment. Although taken-for-granted norms and practices are enduring, stable, and difficult to change, they nevertheless evolve over time, under the influence of external shocks, legal innovations, cultural processes, and social movements pushing for change. As such, like most myths, the dominant conception of what a goal a company ought to pursue has evolved over time.

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Similarly, Smets et al. (2012) argued that institutional change can accidentally happen when solving perceived problems. Change in norms and values are then propelled by the urgency of the challenge that directs improvisation so that the improvisation itself is not random. Improvisation is defined as the spontaneous process by which planning and execution happen at the same time. It is the convergence of planning and execution such as the more proximate the design and solving in time, the more that activity is improvisational. Improvisation is a reactive, spontaneous action in response to unanticipated occurrences, in which law-abiding individuals find a way to manage the unexpected problem, and thus sometimes create something novel in response to the unknown (Mannucci et al., 2021: 614): Drawing on these shared definitional elements, we developed a working definition of improvisation that we used as our compass as we navigated between theory and the field: improvisation is a spontaneous action in response to unanticipated occurrences that is characterized by the convergence of planning and execution.

Situated improvising is localized attempts to cope practically with novel complexities and accomplish specific tasks. It is distributed rather than focused and experimental rather than planned. The locus of change is practice, and a practitioner is the entrepreneur at work. Practitioners act as entrepreneurial change agents only to the extent their situated improvising breaks with the dominant logic in their field, but not in the sense that they deliberately intend to discard existing legal and institutional arrangements. It is the urgency of the work at hand that calls for improvising own handling of unknown complexity. The institutional perspective contributes an understanding of organizational behavior that experiences influence from individuals, groups, 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 &

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Molloy, 2008), organizational culture is characterized by accepted practices, rules, and principles of conduct that are applied to a variety of situations and that define appropriate attitudes and behaviors for organizational members, as well as generalized rationales and beliefs (Barton, 2004). Both compliance and conformance are important institutional theory perspectives. Compliance refers to meeting legal and other formal obligations (Teichmann & Wittmann, 2022), while conformity refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019). An interesting characteristic of people institutions is institutional authority that refers to the extent of enforcement of norms and values. Haines et al. (2022: 186) reflected on the extent of institutional authority in relation to the content of a social license to operate for business activity when requirements in messages from stakeholders have been met: This social permission and the currency of the term provide a potentially important enabler for communities to control the activities of the business in their midst and reduce associated harms. At the same time, the absence of a clear institutional authority underpinning the social license means that its legitimacy as a business requirement can be challenged. The centrally social character of the social license also means that tensions around what is and what is not socially desirable business conduct often emerge simultaneously and can settle on the same activity. Legal and regulatory regimes are ordered around specific harms. A relatively straightforward orientation to hold a business to account for specific harm under the law (safety, environmental damage, fraud) from a social license orientation becomes a multi-faceted struggle over what is desirable, what is undesirable and who has the right to decide whether the business activity should or should not proceed.

The term legitimacy is mentioned in the above quote, where legitimacy is a matter of acceptance beyond legality (Melé & Armengou, 2016: 729):

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Today, the meaning of legitimacy is also related with the acceptance or justification of the existence of an institution beyond ‘legality’ (pertaining to the law)

Legitimacy is then a matter of acceptance of business exercise of power in a justified manner. Demuijnck and Fasterling (2016: 680) referred to legitimacy as “conformity to social norms, values or expectations”. Sometimes three forms of legitimacy are discussed. First, pragmatic legitimacy is based on the self-interested calculations of a company’s most immediate stakeholders (Saenz, 2019: 297): Pragmatic legitimacy is based on the self-interests of the public and is most often exchange or influential in nature. Under exchange legitimacy, society supports a company’s policy based on the expected material benefits to the society, such as technological improvements or employment opportunities. Influential legitimacy is attained by being responsive to stakeholders and incorporating society’s wider interests into the company’s decision-making process.

Next, moral legitimacy is based on a positive normative evaluation of the company and its business activities (Saenz, 2019: 297): Moral legitimacy hinges on whether a particular action is viewed as acceptable by a company’s powerful stakeholders. Moral legitimacy is comprised of four aspects: consequential, procedural, personal, and structural legitimacy. Consequential legitimacy is result-oriented and is based on visible achievements such as increased employment, reduced emissions, and fewer numbers of workplace injuries. With procedural legitimacy, the focal point is not merely results of an action; rather, emphasis is placed on the morality surrounding the means to achieve a particular outcome (…) Structural legitimacy is based on the company’s identity and whether or not it forms a part of a ‘morally favored taxonomic category’, whereas personal legitimacy is dependent on the character of the company’s leaders.

Finally, cognitive legitimacy is based on a perception of the company as a natural phenomenon in the community compliant with established cultural norms (Saenz, 2019: 298):

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Cognitive legitimacy can be split into two elements: comprehensibility and being taken for granted. The former attempts to make society understand the company through providing logical and easily understandable explanations for its actions and plans whereas the latter relies on the very existence of the company being taken for granted as an integral part of the social fabric.

Melé and Armengou (2016) emphasized the importance of moral legitimacy that might be achieved if the intended end of business operations contributes to the common good, if the means of business operations are acceptable, if stakeholder concerns are respected, and if possible risk of damage is minimized. The institutional perspective argues that business enterprises are much more than simple tools and instruments to achieve 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 explain why business organizations tend to be similar in the same industry and the same nation and region (Kostova et al., 2008). The institutional perspective is mainly a sociological and public policy perspective on organizational studies. The perspective sheds light on normative structures and 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 is 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 adaption 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, or even dismissed (Witt et al., 2022).

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Deviance refers to deviant behaviors that violate social norms, guidelines, rules, regulations, and laws. However, misconduct and wrongdoing are contextual and change over time and between places. Yet there are behaviors that tend to be deviant more often than not. From everyday life, one can assume that the following acts are viewed as generally deviant: • • • • • • • • •

Failing to yield to a pedestrian at a crosswalk when driving. Leaving trash in a public space or failing to dispose of trash properly. Dining and dashing by leaving the restaurant without paying. Blocking someone’s path in a grocery store or on a sidewalk. Cutting or jumping in line before others in a grocery store. Failing to return something valuable you borrowed from someone. Talking louder despite others having asked you to lower your voice. Interrupting others when you are talking. Being very late for an appointment or meeting.

Conformance and compliance can represent normative institutional pressures that result from professionalization and socialization, and represent a collective process of establishing a shared base of values and norms. The process can create legitimation for collective occupational autonomy. Professionalization of employees starts with outside sources such as educational institutions that train and certify future employees as well as set standards that guide them in the conduct of their later work. Socialization refers to learning through the appraisal of specific events and incidents how to behave in a way that is acceptable (Ashforth & Humphrey, 2022). Socialization of employees starts when entering the organization where new members learn the value system, the norms, and the required behavior pattern (Orudzheva et al., 2020). For example, some organizations mainly focus on cooperation among employees by extensive knowledge sharing, while other organizations find some forms of competition among employees to benefit the organization. Another example is openness and transparency versus secrecy and confidentiality, where the latter is certainly relevant in policing and intelligence services. Homogenization of employees occurs over time based on both professional and social expectations.

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Orudzheva et al. (2020) argued that organizational size determines the extent of institutional adjustment as large and global companies tend to be more resistant to external pressures. Large size organizations possess more resources than small ones, have a longer life span, and are relatively more affected by internal forces than external forces. Larger organizations have greater opportunities for deviant behavior among their executives (Søreide, 2006).

Institutional Deterioration Causing Decay Organizations can suffer from institutional deterioration causing organizational decay. 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 for white-collar offenders, 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 & Simpson, 2018). Conventional mechanisms of social control are weak and unable to regulate the behavior within the organization (Pratt & Cullen, 2005). Concealment of crime occurs conveniently by simply disappearing among other seemingly legitimate transactions. Executive deviance enacted at institutional deterioration is dependent on a number of 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) defined 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”.

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Institutional deterioration can result from scandals leading to organizational crisis. Scandals are disruptive publicity of misconduct (Dewan & Jensen, 2020) and publicized instances of transgression that run counter to social norms (Hearit, 2006; Whyte, 2016). 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 & 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 & Pfarrer, 2015; König et al., 2020). The opportunity structure for convenience in white-collar crime expands as the organization is concerned with the scandals that lead to the crisis. It becomes more convenient to commit financial crime by whitecollar offenders 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. Guiso et al. (2015) found that organizational cultures which promote low levels of integrity are associated with negative business outcomes such as low employee productivity and corporate profitability. 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). Berghoff and Spiekermann (2018: 291) found that white-collar crime is often systemic and part of a culture, either of a corporate culture inside the firm or of 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

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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 opportunities for and acceptance of illegal behaviors because of moral collapse generally in their organizations. Moral collapse happens when organizations are unable to see that bright line between right and wrong. Seven signs of moral collapse can become visible: (i) pressure to maintain those numbers; (ii) fear and silence antidotes to openness; (iii) young ones 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. There is silence when employees are confronted with executive misconduct (Sherer, 2022). 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.

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

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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 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, 2009). 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 & Cullen, 2005). Of course, rates of financial crime vary across time and space in private and public sectors with different motivational bases (Kjeldsen & Jacobsen, 2013; Miceli & 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).

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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 & 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 socially disorganized entities. Conventional mechanisms of social control are weak and unable to regulate the behavior within organizations (Pratt & 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 & 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 space for themselves without access to 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 hardly communicate honestly with each other. There are no ties allowing others to act collectively to fight problems (Pratt & 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 & Denkers, 2019).

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Ignorance can occur in deteriorating organizations, where ignorance might exist at two levels somehow related to stupidity (KarimiGhartemani et al., 2022: 550): At the first level, it is reflected as a concept equal to unknown knowledge; at the next level, ignorance is against the wisdom and is referred to as the knowledge that is ignored. The stupidity definition is closer to the second level, which means knowing the wrong and right but still doing the wrong thing.

Furthermore, concerted ignorance can occur in deteriorating 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 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.

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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 whitecollar crime suspicion can threaten members’ bonds to the organization. Organizational failure and closure can lead to organizational mourning, which Crosina and Pratt (2019: 67) defined 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 to organizational death results in a large number of people entering the stage of organizational mourning that they all would like to avoid. An element of disorganized institutional deterioration is the opportunity of fraudulent misreporting in accounting (Qiu & Slezak, 2019). Lack of transparency makes concealment in accounting convenient (Goncharov & Peter, 2019; Mehrpouya & Salles-Djelic, 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 cause 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 self-policing has become the norm rather than the exception when it comes to white-collar crime suspicions (Kourula et al., 2019).

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Kourula et al. (2019: 1103) defined government as those public actors that 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 non-governmental actors, whether in politics, society, or markets.

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) defined governance as those private actors that 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.

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Responding to a deviant organizational identity by distancing oneself from the organization in the crisis (Piening et al., 2020) can open up for individual deviant identity to explore and exploit organizational opportunities. As a scandal evolves, a key part of the evolution of accounts seems to be the divergence of interests between the organizational entity and individual top leaders (Schnatterly et al., 2018; Schoultz & Flyghed, 2016, 2020a, 2020b, 2021). The interests of the organization diverge from those of the individuals who first responded to the crisis. The individuals become rotten apples who are blamed for the scandal. An account can take the form of a justification, excuse, apology, or some other explanatory perspective. 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 Hoffmann, 2002; Onna & Denkers, 2019; Visconti, 2020). Differential reinforcement of crime convenience develops over time as individuals become vulnerable to various associations and definitions conducive to delinquency. Both Danske Bank in Denmark (Bruun Hjejle, 2018) and Swedbank in Sweden (Clifford Chance, 2020) had branch offices in Estonia where organized criminals from Russia conducted money laundering because of social disorganization between bank headquarters and local branch offices. As a result, Danske Bank and Swedbank made conveniently extra, yet illegitimate, profits. Social disorganization occurs because human nature is selfish, and people are unwilling to share a common culture. In the perspective of life-courses with age-graded determinants of crime, it is interesting to notice that white-collar crime represents adult-onset offending. Whitecollar offenders are people who live more-or-less conventional lawabiding lives until they are adults and who then commit crimes. Moving into the elite as an adult reduces social controls through social bonds (Benson & Chio, 2020). Misconduct and crime can be hard to detect (Friedrich, 2021), because signals of deviant behavior drown or disappear in noise (Gomulya & Mishina, 2017). Karim and Siegel (1998) define four possible outcomes in the decision matrix of an observer. First, the

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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 frequent false alarms and misses occur, the greater the opportunity is successfully to conceal white-collar crime. 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). Misconduct by Nordea bank from Sweden in tax havens was first revealed when the Panama Papers documented illegitimate wealth management by the bank (Mannheimer Swartling, 2016).

Institutional Plasticity Enabling Change Challengers to institutional arrangements that have led to deterioration causing decay may either choose radical and transformative changes or incremental and transgressive changes. Since institutionalized arrangements of practices, values, and beliefs seem easier to stretch based on their plasticity, Ghaffari et al. (2022: 1708) argued that challengers will seek incrementally to change those institutionalized practices, values, and beliefs that custodians of the status quo are likely to tolerate in small transgressions: In other words, challengers might seek out institutional plasticity, or an institution’s relative capacity for its constituent routines, values and beliefs to be stretched to accommodate ever-changing practice performance.

Institutional theory emphasizes stability, persistence, and reproduction, where institutions represent some enduring elements of social life. Institutions guide individual action, cognition, and also emotion based on taken-for-granted practices and beliefs. Institutional change can occur incrementally and evolutionarily with a series of minor modifications of

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practice over time. Change is then a “bottom-up” approach in the sense that evolutionary practice can cause revision in values and beliefs. As argued by Ashforth and Humphrey (2022: 483), change can be institutionalized through “bottom-up processes that shape an organization’s (or subunit’s) affective climate and affective culture, resulting in a dynamic equilibrium” as “the bottom-up process of emergence occurs via affective events, appraisal, affective sharing, and affect schemas”. The bottom-up approach to change typically derives from individuals who experience their organizational lives locally in a physical setting with coworkers. The importance and significance of the bottom-up approach lies in the failure of traditional approaches to the prevention and detection of executive deviance. At the top of organizations, trust rather than control is the main attitude toward other privileged individuals. Not surprisingly then, deviance is more convenient at the top than further down in the organization. When scandals emerge after detection of executive wrongdoing, people tend to be surprised as scandals reach news making criminology. The bottom-up approach can be efficient and effective to prevent and detect white-collar crime, as skepticism of management actions creates a motivation to correct the situation. People in the organization want to preserve and improve the reputation and survival of the business and avoid organizational mourning after organizational collapse (Crosina & Pratt, 2019). The bottom-up approach to executive compliance and conformity focuses on organizational measures to make deviance less convenient for potential offenders (Haines et al., 2022). Generally, the bottomup perspective “highlights local, on-the-ground variations in practice, value or belief and the more-or-less strategic improvisation of rank-andfile institutional inhabitants as the locus of higher-order institutional change” (Ghaffari et al., 2022: 1710). Both compliance and conformance are important institutional perspectives for incremental change. Compliance refers to meeting legal and other formal obligations, while conformity refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019). Incremental changes exploring and exploiting institutional elasticity and plasticity led by grassroots efforts can cause gradual improvements to overarching institutional structures (Ghaffari et al., 2022: 1711):

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Institutional plasticity, defined as an institution’s relative capacity for its constituent routines, values and beliefs to be stretched to accommodate ever-changing performance is a structural characteristic of institutions that seems likely to be exploited by those seeking to incrementally change a given institution.

Institutional plasticity causes change when it is exploited incrementally and evolutionarily. Elasticity and plasticity can be leveraged for incremental and evolutionary change. Challengers of institutional deterioration must first identify opportunity space for change and be properly skilled and clever to undertake successful efforts. As argued in the previous chapter section, elite members can withhold bad news by accounting misrepresentation. However, they can also choose to disclose bad news. Bao et al. (2019) found a positive relationship between bad-news disclosure and litigation risk as well as no or little incentive to support the stock price. Furthermore, lack of reputational concerns as well as career concerns causes a willingness to disclose bad news. When personal wealth is not at stake then yet another barrier to disclosure is absent. In a similar study, Hillebrandt et al. (2022) examined what motivates managers to deliver bad news in a just manner. They found that managers with higher core self-evaluations will experience less anxiety about delivering bad news. However, those characteristics can also imply that bad news is delivered in a less just manner. Core self-evaluation refers to a stable personality trait that reflects fundamental evaluation of self. Anxiety in isolation can cause an actor to engage in delivering bad news in a manner of interpersonal justice. Institutional plasticity enabling change requires institutionalization of change, where institutionalization is a process that happens with participation of individuals (Orudzheva et al., 2020). As argued by Ashforth and Humphrey (2022),institutionalization refers to change becoming an objective feature of the workplace that is exterior to any one person. The change is a property of the collective rather than one specific individual and will be able to persist in times of individual turnover. While it may sound paradoxical, the change can thus be resistant to change. When new

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stable properties of the collective are independent of any one individual, then the properties are institutionalized. Both the identity of an individual and the identity of an organization can change within institutional plasticity. Identity of an individual is the person’s self-concept in terms of the knowledge structure that contains all information relevant to self. Piening et al. (2020: 327) defined three self-concept levels: First, people define themselves in terms of their personal attributes (e.g., personality, abilities, and interests). At this individual level, one’s sense of uniqueness and self-esteem is based on favorable comparisons with other people in a given social context. Second, the relational level involves selfdefinition based on connections and role relationships with others, with one’s self-worth being influenced by the quality of these relationships. Third, the collective level refers to defining oneself in terms of the social groups one belongs to.

Identity of an organization, on the other hand, is all members’ shared beliefs about the distinctive, central, and relatively enduring attributes of the organization (Piening et al., 2020), which is not part of convenience as such. Rather, organizational identity is only relevant in the willingness dimension of convenience to the extent the gap between individual and organizational identity makes the choice of crime convenient. It can be convenient to distance oneself from the organizational identity to protect a deviant individual identity. The concept of organizational identity can be defined as the organizational equivalent of individual-level identity, where it is an understanding of a collective self that enables members uniquely to position the organization within a social space. Like individual identity, organizational identity focuses on attributes of the organization that members perceive as unique and distinctive (Cloutier & Ravasi, 2020). Identity change is possible as the self is reflexive, and identity is actively worked on, both individually and in social interaction. Brown (2022) argued that people have multiple identities that are generally fluid and rarely fully coherent. Therefore, identities can be updated to avoid, for example, narcissistic identification with the enterprise (Galvin et al.,

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2015). When identities are fabricated within relations of power, then other powerful individuals can indeed cause change.

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4 Stakeholder Theory Perspectives

Building on the preceding chapter, another formative perspective on the corporate social license is stakeholder theory. In this chapter, stakeholder theory perspectives are considered to explain how businesses mobilize and respond to various interest groups. In this sense the social license is the set of demands and expectations held by local stakeholders and broader society about how a business should operate, and “a license is then said to be granted if the business is deemed to have met these demands and expectations – and thus is viewed as being socially acceptable” (Hurst et al., 2020: 1). Chapter coverage includes the process of gaining and maintaining a social license and the involvement of business stakeholders, before exploring specific stakeholder influences, such as the impact of community religion, workplace management immorality, the magnitude of offender recidivism, the effect of white-collar support groups and the pursuit of former Chief Executives. Fundamentally, stakeholders self-identify with a company when they believe that they affect and are themselves affected by the actions of the company. Individuals come to self-identify as a company’s stakeholders based on their own perceptions (Alvarez & Sachs, 2022). Stakeholders

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can grant the company a social license to operate if they find the company trustworthy (Haines et al., 2022). Stakeholder theory is concerned with business performance and corporate management in the promotion of justifiable ways to perform and manage organizational matters during varying environmental situations. The theory supports business and social issues by assisting strategic decisions in line with stakeholder expectations (Waheed & Zhang, 2022).

Gaining and Keeping a Social License Gaining and keeping a social license to operate can be just as important to many corporations as securing the legal license to operate in the form of compliance with laws and regulations (Panda & Sangle, 2019: 1085): The tension between firms and stakeholders creates a dynamic environment where following compliance is not enough and social acceptance is equally important as government licenses. Such an acceptance is termed as “social license to operate” (SLO). SLO exists when a project is seen as having the broad, ongoing approval and acceptance of society to conduct its activities. SLO is increasingly becoming a critical success factor for projects worldwide. Over the years, the significance of the inclusion of social dimension into a project design has been stated by practioners and academicians alike.

Panda and Sangle (2019: 1086) discussed two reasons why the importance of a social license is increasing for most enterprises: The escalation of social risks indicates two factors. One, there is a growing awareness among stakeholders of their power to make their voices heard. The rise of social media has resulted in organized movements against corporations as well as in the demand for greater transparency from firms. The number and type of stakeholders for a firm are no longer confined to their immediate surroundings. Most multinational corporations have “global stakeholders” who may not directly have a stake in the firm but are interested in its social, economic, and environmental impacts. Firms

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practicing opaqueness are at a greater risk than those open to stakeholder inspection. Second, firms seeking social acceptance are not winning at it. Firms are pursuing SLO through customized stakeholder engagement. Over the years, researchers and practitioners have come up with two types of approaches to obtain SLO. The first approach considers stakeholder engagement as central to obtaining SLO and urges firms to approach them in a variety of manner to obtain a social license. The second is a structured approach towards stakeholder engagement in the form of specific models to obtain SLO.

Involvement of Business Stakeholders “Capitalism works when actors are motivated to cooperate in the joint creation of value”, as “stakeholder theory has consistently argued that capitalism works when actors are motivated to jointly create value and to trade”, where “essential stakeholders are actors without which the company would struggle to survive” (Bridoux & Stoelhorst, 2022: 215). Essential stakeholders are typically suppliers, customers, employees, creditors, and local communities. Some stakeholders are internal to the company, while others are external. Stakeholder theory argues in favor of cooperation that refers to an actor’s behavior that benefits another actor as the recipient. However, stakeholders might face several problems when engaging in joint value creation with a specific corporation. For example, an action that has negative consequences for the self would be avoided. Sale (2021) argued that the social license to operate is predominantly centered on social permission by stakeholders for business activity where the media, social movements, and citizen watchdogs exert pressure, demand change, and bring enterprises to account. The social license refers to “the acceptance or approval by the local – if not indigenous – communities and stakeholders of a business enterprise’s operations or projects in a certain area” (Saenz, 2019: 297). The social license is “the set of demands and expectations held by local stakeholders and broader society about how a business should operate”, and “a license is then said

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to be granted if the business is deemed to have met these demands and expectations – and thus is viewed as being socially acceptable” (Hurst et al., 2020: 1). The social license is “a social construction to which various stakeholders contributes” (Baba et al., 2021: 248). The social license is an expression “often used in the context of a possible disapproval of their activities, when such disapproval may result in resistance that could harm business interests”, and the term “refers to mainly tacit consent on the part of society toward the activities of the business” (Demuijnck & Fasterling, 2016: 675). According to Rooney et al. (2014: 209), a social license refers to “an informal agreement that is granted by communities and relevant stakeholders to an organization or industry working in the local area”. Fotaki et al. (2020) suggested that corporate governance refers to mechanisms to protect and enforce stakeholders’ rights by monitoring executives through transparency and holding them accountable, where corporate governance mediates between the various interests of internal and external stakeholders. In contrast to the traditional agency perspective of a board’s inability to control management, the multiple agency perspective includes various stakeholders as principals in their use of mechanisms to control management (Fotaki et al., 2020: 20): It considers a host of monitoring and incentives alignment mechanisms, as potential remedies for the multiple agency problems arising within a listed firm due to information asymmetries and conflicts of interest among various principals and agents.

The multiple agency perspective suggests that various stakeholders in combination might enable reduction or avoidance in principal– agent problems from opportunistic behavior by corporate executives. Stakeholders rather than shareholders might mainly determine business direction (Lucas et al., 2022), especially when stakeholder issues resonate with and are prioritized by management (Durand et al., 2019). Management might make the changes necessary for the business to continue operating in good standing with its industry, community, and customer base to the satisfaction of all stakeholders.

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It might be misleading to differentiate between stakeholders and shareholders as shareholders can be defined as stakeholders as well (Ganson et al., 2022: 260): We use the term stakeholders to refer to those defined as primary stakeholders, without whose continuing participation the corporation cannot survive as a going concern. Primary stakeholders include shareholders, employees, customers, and suppliers, together with the government and communities. These primary stakeholders are distinct from secondary stakeholders, defined as those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival.

When using these definitions, Ganson et al. (2022) found that a company’s own actions can also have an impact on relations among stakeholders. Not only the bilateral relations between a company and its stakeholders, but also the multilateral relations among stakeholders are influenced by the company itself. Their study argued that company behavior and relationships with stakeholders can impact the risk of conflict in a society, which was the chosen issue in the research. Ganson et al. (2022) argued in their research propositions that the risk of conflict in a society can decrease as a result of company actions that strengthen inter-stakeholder ties: • The higher the preexisting level of horizontal inequalities, the more a company fosters a denser network of cooperative ties between identity groups, and the more it reduces conflict risk in the broader societal network. • The higher the preexisting level of horizontal inequalities, the more a company bridges identity groups when building firm-stakeholder relationships, and the more it reduces conflict risk in the broader societal network. • The higher the preexisting level of horizontal inequalities, the more a company erodes the boundary between identity groups within its stakeholder network, and the more it reduces conflict risk in the broader societal network.

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• The higher the preexisting level of horizontal inequalities across conflictual network components, the more a company supports a helpful broker’s ties across those subcomponents, and the more it reduces conflict risk in the broader societal network. These research propositions start with the extent of preexisting level of horizontal inequalities that refers to deprivation or poverty versus excessive wealth underlying violent conflict. It also refers to the distribution of costs and benefits between conflicting groups. The fundamental premise of business and peace is that a company can foster a denser network of cooperative ties and bridge conflicting groups. Like Ganson et al. (2022) suggested that companies can foster and bridge interests among stakeholders, Bridoux and Stoelhorst (2022) argued that capitalism is dependent on the governance of cooperation among independent actors whose interests are not fully aligned. Managing for stakeholders is expected to lead to more value creation than ignorance of stakeholder views or preference of mainly shareholder interests.

Impact of Community Religion Cui et al. (2016) suggested that companies headquartered in areas with higher religiosity tend to engage in more socially acceptable practices that can grant them the social license to operate. They examined the empirical association between companies’ employee practices and religiosity of its local community. They used a sample in the United States where they found a positive association between employee-friendly practices that are perceived as socially acceptable and the extent of religious belief in the local community. Earlier, Fleckenstein and Bowes (2000) phrased the question: Do members often betray trust in terms of white-collar crime in religious institutions? Similarly, it is relevant to ask the question: Do humanitarians in global teams of humanitarians often betray trust in terms of financial crime in foreign aid organizations? According to Owens and Shores (2010), most white-collar crime incidents are exploitations of

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trust, where trust may originate from a shared religious identity between the victim and the perpetrator. Similarly, trust among aid workers may originate from a shared aid 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 when an attractive opportunity arises? While shared religious beliefs may lead to less acceptability of whitecollar crime, the extent of opportunity for white-collar offenders may be greater in religious settings, mainly because of the trust-based culture found in religious institutions (Fleckenstein & Bowes, 2000; Owens & Shores, 2010; Shores, 2010). However, Cui et al. (2016: 800) argued differently by claiming that companies located in more religious communities do deserve more trust in their business practices as they have more employee-friendly practices where they can qualify for the social license to operate: Our study generally confirms our religious morality hypothesis: firms headquartered in areas with higher religiosity tend to engage in more employee-friendly practices. Such practices have been shown to improve the likelihood that a firm will secure the social license to operate. The association between religiousity and employee-friendly initiatives remains robust after being tested against several financial and demographic control variables. Moreover, the association remains intact after being subjected to the dynamic panel system generalized method of moment designed to mitigate the effects of endogeneity.

The extent of employee-friendly practices was rated on a number of statements such as: “the company has taken exceptional steps to treat its unionized workforce fairly”, “the company has maintained a consistent no-layoff policy”, “the company has a cash profit-sharing program through which it has recently made distributions to a majority of its workforce”, “the company has a notably strong retirement benefits program”, and “the company has strong health and safety programs”. The extent of religiosity in the local community was rated on the percentage of religious adherents by dividing the number of religious adherents by that community’s total population. Distinctions were made

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between catholic religiosity, protestant religiosity, and evangelical religiosity. Research results suggested that catholic religiosity encourages employee involvement programs, while protestant religiosity encourages profit-sharing programs, and evangelical religiosity discourages firms from maintaining poor union relations (Cui et al., 2016).

Managers Without Workplace Morals White-collar crime is economically motivated crime committed by individuals in privileged positions in business and public organizations (Sutherland, 1939, 1983). Crime is committed by abuse of trust to benefit the individual by occupational crime (Benson & Chio, 2020) or to benefit the organization by corporate crime (Bittle & Hébert, 2020). White-collar crime is unlawful conduct that elites and the powerful commit with little fear of coming into contact with the criminal justice system. White-collar offenders commit and conceal their crime in a professional setting where they have legitimate access to premises, resources, and systems. White-collar crime includes all categories of financial offenses such as fraud, corruption, manipulation, and theft. Perceived seriousness of white-collar crime has been studied as a factor that can influence the involvement or lack of involvement of the criminal justice system (Simpson et al., 2022). For example, Cullen et al. (2020) studied public opinion about white-collar crime, and they found public willingness to punish white-collar offenders. However, they found that public opinion about inflicting punishment on white-collar criminals varies depending on the clarity of culpability, typical harm, violation of trust, and need to show equity. Some studies have shown that the public applies criteria that regard corporate criminality as very low enforcement priority (e.g., Andriaessen et al., 2020). 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. A manager without morals is a leader who does not respond to the ethical component of business situations by workplace deviance as potential business offenders. The amoral manager lacks moral response during

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ethical situations. Quade et al. (2022: 274) defined amoral management as “a leader’s consistent failure to respond to issues that have ethical implications”. Amoral management can result in wrongdoing and be harmful for the organization. Amoral management might cause deviant behavior among other employees as they lack a motive of behaving ethically in the workplace. Unethical behavior can include lying, cheating, stealing, defrauding, manipulating, and bribing. The moral obligation to abide by the law can be ignored by amoral management. They have no moral culpability (Berghoff & Spiekermann, 2018). 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) young ones and a biggerthan-life CEO; (iv) a weak board; (v) conflicts; (vi) innovation like no other; and (vii) goodness in some areas atones for evil in others. There is silence when employees are confronted with executive misconduct (Sherer, 2022). Amorality is different from immorality as the latter refers to a conscious choice of deviant behavior (Kavoukis, 2022). Craig (2019) suggested a link between lack of self-control and morality based on the situational action perspective. The perspective argues that an individual’s morality is the central individual-level variable in predicting offending. It also hypothesizes that low self-control will only predict offending among those with low morals. 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.

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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 & Pfarrer, 2015; König et al., 2020).

Offender Recidivism Magnitude Recidivism refers to repeated crime by offenders. Recidivism is the tendency of convicted criminals to reoffend. According to Collins et al. (2017), recidivism is defined as the behavior of a person repeating an illegal act after having experienced negative penal consequences of a previous offense. Long et al. (2021) found that white-collar prisoners were not more-or-less likely to return to prison compared to other inmates. Recidivism ranges from 7 to 29 percent in various empirical studies of convicted white-collar offenders (Clarkson & Darjee, 2022). The severity of punishment has shown to have no effect on recidivism (Mears & Cochran, 2018). The only effect is whether or not the convicted offender has to go to prison. For example, in Norwegian legislation, an offender can be convicted to prison where the verdict says that actual incarceration depends on the convict’s behavior in the coming years. Rational choice among convicted white-collar offenders is a matter of recidivism, i.e., what subjectively perceived benefits and costs are after incarceration. Repeating white-collar crime might be a rational choice since the collateral effects of being sentenced a second time can be much lower than the first time. On the other hand, the opportunity can be drastically reduced the second time. The prison experience can either support the special resilience hypothesis or the special sensitivity hypothesis (Logan, 2015; Logan et al., 2019), which strongly influences perceived costs of recidivism. The special sensitivity hypothesis suggests a relatively tougher life for whitecollar inmates that Logan and Olma (2020) labeled a myth different from empirical reality that supports the special resilience hypothesis, which suggests that white-collar offenders are able to adapt to prison

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life more successfully than other inmates are (Logan et al., 2019; Uhl, 2022). According to McGloin and Stickle (2011: 430), “One of the key factors that scholars suggest differentiates chronic offenders from their non-chronic counterparts is an earlier age of onset”. Recidivism from low self-control can—in addition to the age of onset—be a matter of risk factors in personality traits and family conditions (Listwan et al., 2010). Listwan et al. (2010) measured recidivism in terms of new arrests. Friedricks et al. (2016) suggested that recidivism is high not only because of low self-control but also due to lenience in sentencing and punishment of business offenders. They used data from US district court sentencing and found that recidivism among white-collar offenders was fifty-eight percent. However, they used a definition of white-collar crime that included larceny, theft, motor vehicle theft, and other property crime. They did not use the main criteria of financial crime in a professional setting by abuse of trust. In a study of recidivism by Logan et al. (2022), the researchers found that gender matters in that female offenders are less likely to reoffend compared to male offenders. In drug-related offenses by white-collar offenders, the researchers found that males had 219% greater odds of recidivating for a new crime. Generally, however, female and male white-collar offenders appeared inherently more similar in their behavior compared to violent offenders. The researchers suggested that the similarity might be explained as a byproduct of the offense type, and more broadly, the nature of white-collar crime.

White-Collar Support Group In the United States, Jeff Grant—convicted of white-collar crime—initiated and established a white-collar support group for convicts. Some of the convicted white-collar offenders wrote about their lives and some presented themselves in the speaker series of the support group. Their stories represent anecdotal evidence of offender characteristics as presented in the following (www.prisonist.org):

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• When then-financial analyst Tom Hardin left his Manhattan apartment building one summer’s morning in July 2008, he knew the game was up. He had been an insider trader on the stock market. “I stepped onto the sidewalk and this guy behind me says, ‘Are you Thomas Cody Hardin?’ Anytime someone calls you by your full name, you are probably in trouble”, he laughs. “I knew I was trouble as a child when my mother did it”. The voice came from one of two FBI agents who quickly informed him that they knew that he had made four trades on the stock market using insider information. The 29-year-old Hardin’s head was spinning. His first concern was what his parents would think and if his new bride, who had known nothing about his illegal activity, would leave him. Then it struck him that his career would soon be in ruins and that a prison sentence was likely. The FBI offered him the opportunity to help them catch the true ring leaders. After a few sleepless nights, Hardin called the FBI and confessed that he knew about others involved in illicit trading and volunteered to wear a wire. That was the start of Hardin’s journey as one of the most prolific informants in securities fraud history. Code-named “Tipper X”, Hardin helped build more than 20 criminal cases in what became known as “Operation Perfect Hedge”, the largest insider trading investigation in a generation. • Sales executive Craig Stanland listened to a voicemail message that he received on October 1, 2013: Mr. Stanland, this is special agent McTiernan with the FBI. We are at your residence and have a warrant for your arrest. You will need to call us and come home immediately, or we will issue an APB with the federal marshals for your arrest.

Craig Stanland had exploited the warranty policy of one of the largest tech companies where he was a sales executive. He was arrested and sentenced to two years in federal prison, followed by three years of supervised release, and was ordered to pay $834,307 in restitution. He lost his wife, his homes, his career, and even his identity. He had operated a service contract fraud scheme in which he purchased or

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controlled approximately 18 service contracts for Cisco networking parts. His motive was greed (Stanland, 2021). • Jeff Grant is a convicted white-collar offender who abused his position as a lawyer in New York. After ten years of rampant prescription opioid abuse, his law business was failing. He was searching desperately for a way out of his financial problems. Meanwhile, the television and the radio were blaring with advertisements for 9/11 Fema loans administered by the US Small Business Administration. Fema disaster assistance was designed to support business recovery from major disasters such as 9/11. Jeff Grant claimed he had an office near Ground Zero. He received the small business loan he requested and immediately paid down the personal credit cards. Later he was arrested for the misrepresentation on his loan application and served almost 14 months at a federal prison for wire fraud and money laundering. Jagdev (2021) wrote about Grant: An addiction that prompted poor judgement: As his firms’ cashflow faltered and personal debts mounted. Ethical boundaries became blurred: Disbarred for re-appropriating client funds. And eventually jailed for fraudulently claiming 9/11 disaster relief funding.

After his release from prison, he founded a white-collar community called Progressive Prison Ministries. The disbarred lawyer Grant earned the master of divinity degree from Union Theological Seminary in the City of New York, with a focus on Christian social ethics before he founded the community. Progressive Prison Ministries in Greenwich, Connecticut offer an online white-collar, nonviolent support group (see Gottschalk & Hamerton, 2023: 163). • Jacqueline Polverari owned her own business employing her father, mother, husband, niece, and best friend in the Title Search Company and the Notary Closing Company in the mortgage industry (Polverari, 2020): I had a continuing need to prove myself to my father, a constant need to please all of those around me and a desire to take care of everyone that I love.

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Her motive seems to be social concern and crime, where there is a desire to help others, and thus moving beyond the assumption of simple self-interest. However, the motive of pleasing the father as well as helping others can be a self-interested and rational action that claims social concern. Jacqueline Poverari was convicted of mortgage fraud in 2014. Her fraud scheme was a reaction to the mortgage industry collapse in 2008. Despite the industry collapse, Polverari tried instead to grow the business. She applied for every business loan she could think of and got denied. No bank would give money to a company in the mortgage industry when it was crashing, especially a Title Company. She was out of money to make payroll for the employees. She started to abuse closings, which were money transfers wired into company accounts that were destined for clients (Polverari, 2020): I figured I could use some of that to make payroll and when I could collect from the clients who owed me money I would pay it back. It would be fine. The person’s mortgage would get paid off later than expected but at least it would give me time to fix everything. Because that is what I did, I fixed everything. I made it better so no one had to ever worry. But it only got worse from there because our largest client at the time closed its doors with a huge bill owed to my company. This was the money I needed to pay back the funds that I used for payroll. From that point on it was a domino effect; you know the chain reaction produced when one event sets off a chain of similar events.

Polverari was a graduate of Southern Connecticut State University and Fordham University. She was an experienced professional in marketing, branding, and mentoring environments. On her off-time, she enjoyed playing her flute, playing tennis, and taking bike rides by the beach. Polverari was sentenced to one year and one day in prison. She self-surrendered to Danbury Federal Prison Camp for women. After prison, she said she would dedicate her life to helping women recover from incarceration. She described herself as a victim of incarceration. This is a neutralization technique where the offender feels badly treated by police investigators and correctional institutions. The offender perceives being victim of incident, where others have ruined

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the offender life. The incident leads to police investigation, prosecution, jail sentence, and imprisonment, where all involved behave in terrible manners. Media is printing pictures of the offender. The offender perceives being a loser and made victim of those who reacted to her crime after disclosure. The white-collar support group is a community of people with whitecollar justice issues who have a desire to take responsibility for their actions and the wreckage they caused. They want to make amends and move forward in a new way of life centered on hope, care, compassion, tolerance, and empathy. Their experience shows that many are suffering in silence with shame, remorse, and deep regret. Many have been stigmatized by their own families, friends, and communities, and the business community. The goal of the community is to learn and evolve into a new spiritual way of life and to reach out in service to others.

Chasing Former Chief Executive I Thomas Borgen had to resign from the position of chief executive officer at Danske Bank. Several years later, in 2022, he had to defend himself in a class action brought by Belgian Demidor Recovery Services. The lawsuit on behalf of 74 professional investors in Danske Bank was filed in February 2020. Later, the list of plaintiffs was expanded to 155 different legal entities. The compensation claim of 2.5 billion Danish kroner (about USD 300 million), plus interest was about losses related to a money laundering scandal in Estonia. The plaintiffs believed Borgen should be held responsible for the bank’s stock market value being more than halved due to the scandal, and for the bank not providing the market with sufficient information in the case from February 2014 to October 2018. The trial was scheduled from September 21 to October 11 in Copenhagen, Denmark (Trumpy et al., 2022a). The plaintiffs were demanding a very large sum of money in compensation for lost market value in Danske Bank, but they did not know if the money existed. On the second day in court, on September 22, 2022, former Danske Bank CEO Thomas Borgen was mostly silent. Borgen

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sat in the courtroom flanked by his defense lawyers, Peter Schradieck and Jimmy Skjold Hansen from the law firm Plesner. Above Borgen sat the plaintiff ’s lawyers from the law firm Elmann. Partner Kasper Westberg from Elmann continued on the second day to read out extracts from supervisory board reports, annual reports from the bank, and newspaper articles that were all background material for the claim. Confused about insurance ahead of the trial, Borgen’s lawyers argued that he was not in a position to pay any compensation. The plaintiffs seemed to gamble on a special insurance scheme usually signed by large banks to avoid executives being personally liable for damages in the event of a lawsuit, which Borgen was in the middle of at that time (Risbakken et al., 2022a). Several years earlier, law firm Bruun Hjejle (2018) in Copenhagen, Denmark, was hired by Danske Bank to conduct an internal investigation at Danske Bank related to money laundering. The suspicion focused on activities at Danske Bank’s branch office in Estonia. Danske Bank paid 210 million Danish kroner (about US$ 30 million) for the investigation by the law firm. The investigative knowledge strategy included mainly knowledge workers with legal training at Bruun Hjejle. In addition, forensic experts from PwC and Ernst & Young were assisting the law firm based on accounting and auditing knowledge, and the international data management software company Palantir Technologies deployed its software platform to integrate and enable analysis of the comprehensive magnitude of customer, transaction, and trading data available. CERTA Intelligence and Security was also assisting in these investigative tasks. The fraud examiners investigated thousands of customers and millions of transactions as well as trading activity. They examined the now terminated non-resident portfolio in the Estonian branch from the time of Danske Bank’s acquisition of Sampo Bank completed in 2007 until the termination of the non-resident portfolio in late 2015, with some accounts closing in early 2016. The main focus was on the customers in the non-resident portfolio and their payments and trading activities during this period. The employees and agents of the Estonian branch who handled the non-resident portfolio or could otherwise have been involved were also investigated to uncover potential internal collusion.

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Former Danske Bank CEO Thomas Borgen claimed in court that he had given away most of his personal wealth as gifts, and that the rest was somewhere unknown. According to official tax records in Norway, Borgen had a net fortune of six hundred thousand Norwegian kroner that is equivalent to sixty thousand United States dollars. In his six years as CEO at Danske Bank, he had made twelve million US dollars. On the third day of court hearings, it was still unclear whether Danske Bank had an insurance policy that would cover parts of or completely the claim from the plaintiffs for 3.3 billion Danish kroner based on the collapse of the share value after the money laundering scandal in 2018 (Risbakken et al., 2022b: 14): -Upon request, Borgen’s lawyers have refused to show insurance details, said Edouard Fremault of Deminor Recovery Services, which has filed the lawsuit, to the newspaper this week. -I cannot comment on that, Borgen’s lawyer Peter Schradieck told the newspaper outside the courtroom in Copenhagen, when asked directly about possible insurance coverage.

The former chief executive was not only chased by stockholders who had lost share values because of the money laundering scandal. In 2019, Danish police brought criminal charges against Borgen because of the same scandal. Danish police had searched his houses for evidence (Frantsvold et al., 2019). Borgen said in court that he was on a study trip abroad with the bank’s top management when the first articles about the scandal began to appear in 2017. He said that senior management then set out trying to understand what the case was about, and began work that included the involvement of internal and external legal resources such as the compliance department. When asked by his lawyer Peter Schradieck about the importance of the Baltics and Estonia for Danske Bank and for him as the CEO, he replied that it was quite insignificant (Bøe, 2022): -What has happened is absolutely terrible. There is no doubt that the bank has not lived up to its obligations, says Borgen from the witness box.

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An important issue was what Borgen, as the CEO, knew about the case, and at what times he knew what (Bøe, 2022): -The press was ahead of us with this here, says Borgen, who claims that the media had more information about transactions than he himself did in the beginning.

Investors have pointed out that red flags were raised as early as 2007, and that a number of investigations were carried out by local authorities over the years. Despite this, the Estonian branch is said not to have been closed down until 2015. Danske Bank has been under investigation in several countries, but still in 2022 no one in the group management had been held accountable, according to the plaintiff Deminor (Bøe, 2022). Borgen denied that he knew something was wrong in Estonia. Borgen was asked by Westberg, one of the plaintiff lawyers, who paid for Borgen’s defense. Borgen replied that he did not pay himself. Then Westberg asked again. Borgen replied that he thought his defense was paid by Danske Bank. Then Westberg asked if Borgen was covered by a so-called Directors&Officers insurance. Borgen then referred to the process documents. The judge followed up by saying (Trumpy et al., 2022b: 6): -You might answer yes or no, if you know it. -I do actually not recall, sorry, said Borgen. -You don’t remember, said Westberg. No, replied Borgen.

Borgen’s defense was focused on his lack of access to information, and that his decision-making might have been influenced by an information gap. Borgen claimed that he had no idea about suspicious transactions by non-residents in Estonia (Trumpy et al., 2022b). On the fourth day of trial hearings, the former chief internal auditor at Danske Bank from 1998 to 2015, Jens Peter Thomassen, presented his witness statement. He said that bank management was informed about a whistleblowing letter from Estonia already in 2014. In a pause during

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the witness statement by Thomassen, a journalist asked Borgen about his reaction to the witness statement (Trumpy et al., 2022c: 17): It is the other party who has called this witness, and I have no comment regarding it.

At this time, the total costs for his defense had passed 16 million Danish kroner. Borgen was again asked who paid for his defense. He replied again that he did not pay, but he would not tell who paid for his defense attorneys (Trumpy et al., 2022c). Thomas Borgen was not the only CEO in the banking sector being chased for misconduct related to reluctance of intervening against potential money laundering. Birgitte Bonnessen 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 & Christensen, 2020). The investigation report by Clifford Chance (2020) suggested that the Swedish bank actively targeted high-risk individuals in the Baltic region and pointed to failings from both top management and the board (Milne, 2020). Similar to Danske Bank in Denmark, customers in Sweden switched banks, so there was a competition effect in Sweden as well (Asplid, 2019). The competition effect in the banking industry implies that non-accused banks enjoy a spillover effect from accused banks. This is contrary to the stigma effect suggested by Naumovska and Lavie (2021: 1130), where “research on misconduct suggests that accusations against industry peers generate negative consequences for non-accused firms”. Sudden resignation and chasing of CEOs at banks seemed quite common. At Deutsche Bank, a subsidiary CEO resigned after a greenwashing raid (Askew, 2022). The successor of Thomas Borgen, Chris Vogelzang, had also suddenly resigned as he was named a suspect in a probe into violations of money laundering regulations at Dutch lender ABN Amro (Kalnins, 2021). Former ING bank CEO in the Netherlands, Ralph Hamers, faced “charges personally for his role in the money

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laundering scandal which led the financial services group to reach a Euro 75 million out of court settlement in 2018” (DutchNews, 2020). The next CEO in line at Danske Bank was Carsten Egeriis. He announced in October 2022 that Danske Bank made a loss provision in their account of DK 14 billion, that is the equivalent of USD 1.9 billion. The reason was expected punishment by joint Danish and US authorities because of the money laundering scandal in Estland (Hartwig, 2022). Maybe potential loss in the Borgen case was secretly included in this almost astronomical amount to avoid the attention of the plaintiffs. The compensation claim of 2.5 billion Danish kroner (about USD 300 million), plus interest was about losses related to the same money laundering scandal in Estonia.

Chasing Former Chief Executive II Jo Lunder had to resign from the position of chief executive officer at VimpelCom, a mobile phone network operator with headquarters in the Netherlands. Several years later, in 2022, he had to refund legal expenses to the Norwegian state amounting to NOK 400,000 (about USD 40,000). Oslo district court decided that Lunder had to pay the state to cover part of the legal costs in the compensation case that never came before the court. One month earlier, the former telecom executive withdrew the compensation lawsuit against the state; just before the trial was due to begin (Lund, 2022: 12): Lunder had put forward a record high compensation claim of up to NOK 600 million, based on past income and expected future income. -It is a family decision. After careful deliberation with the family, I have chosen to withdraw the lawsuit. The case has been a big strain on us for the past seven years; Lunder told the newspaper in connection with the compensation case being put to rest. -We have spent a lot of resources over several years, together with the state attorney, on countering Lunder’s factual and legal claims, police chief Pål Lønseth told the newspaper in connection with Lunder withdrawing the compensating case.

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Lunder had put forward three arguments for the state to cover its own legal costs, which would be an exception to the main rule in the disputes act (Lund, 2022: 12): “The arrest and imprisonment have caused Lunder great and irreparable damage and loss. It is assumed that the state does not dispute it. It is also an indisputable fact that the criminal prosecution was groundless, even if it took the police two years to reach this conclusion”. “The police withheld a number of key documents and information in connection with the imprisonment case. This was information that the police was aware of when they arrested and imprisoned Lunder in October 2015”. “The state has refused a reasonable settlement offer. Already prior to the lawsuit, an initiative was taken to dialogue with the state, without it being accommodated. It therefore became necessary to initiate legal action”, writes Lunder’s lawyer. In the ruling from Oslo district court, it appears that in November last year, Lunder made a settlement offer to the state of “NOK 15 million as a full and complete settlement”.

The settlement offer was put forward by lawyers Sven Eriksrud and Edvard Stulien at law firm Schødt. The state did not accept it, and the court did the following year not give any weight to Lunder’s three arguments. The judge wrote in the verdict that the court cannot make a decision on whether the arrest and imprisonment resulted in large and irreparable damages and losses, since the case had not been presented in any trial with relevant evidence. Regarding the settlement offer from Lunder’s lawyers, the court simply said that it had no idea whether the offer was reasonable. Lunder had argued that the state by the police had ruined his career as an international business leader, with subsequent loss of income, when he was arrested in the autumn of 2015 and brought into custody, charged with corruption. The criminal case against him was dropped two years later because of lack of evidence beyond any reasonable doubt (Lund, 2022). Telia in Sweden was involved in corruption to obtain mobile phone licenses in Uzbekistan where Telia executives later faced prosecution in Swedish courts (Schoultz & Flyghed, 2021). VimpelCom in the Netherlands was involved in the same kind of wrongdoing (Hovland & Gauthier-Villars, 2015). They were bribing Gulnara Karimova, the

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daughter of Uzbek president Islam Karimov. VimpelCom entered into a deferred prosecution agreement with the US Department of Justice, where VimpelCom admitted, accepted, and acknowledged that it was responsible for acts of its officers, directors, employees, and agents. The Norwegian chief executive at VimpelCom, Jo Lunder, was charged with corruption by Norwegian police, but the case was dismissed. When the case against former VimpelCom CEO Jo Lunder was dismissed, he sued the Norwegian government for lost income of several hundred million Norwegian kroner (about USD 50 million). On the day the trial was scheduled to begin in Oslo district court, Lunder withdrew his claim (Klevstrand et al., 2022). The description of VimpelCom’s Uzbekistan transactions by corporate investigators at Deloitte (2016) was based on statement of facts by United States and Dutch investigating authorities related to the settlement with VimpelCom. The statement of facts can be downloaded from www.justice.gov/usao-sdny/file/826456/download. The statement was incorporated by reference as part of the deferred prosecution agreement between the US Department of Justice and VimpelCom (Schjelderup, 2020). While Telia admitted to charges and paid $965 million, VimpelCom entered into the deferred prosecution agreement with the US Department of Justice and with the prosecution service in the Netherlands, where the company paid $835 million to the US Securities and Exchange Commission and to the public prosecution service of the Netherlands. According to the statements of facts for the agreement, the bribe related to the acquisition of 3G frequencies in 2007 was falsely recorded in VimpelCom’s consolidated books and records as the acquisition of an intangible asset, namely, 3G frequencies, and as consulting expenses. Gulnara Karimova, the daughter of the Uzbek president, had her own firm Takilant. The Dutch telecommunication company VimpelCom transferred USD 60 million to her through a tax haven to her firm’s account in Gibraltar. VimpelCom admitted corruption in Uzbekistan to gain access to telecom licenses in the country. VimpelCom had to pay authorities in the United States and the Netherlands fines (Schjelderup, 2020).

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In 2007, VimpelCom arranged to pay foreign officials, through the shell company, an additional $25 million bribe to obtain 3G frequencies in Uzbekistan. The year before, VimpelCom had paid $114 million in bribes for foreign officials’ understood influence over decisions made by the Uzbek government. Furthermore, VimpelCom directly or through a subsidiary, entered into fake consulting contracts, where real work did not justify the large consulting fees. At the age of 60 years, Lunder was in 2022 no poor man. He held several board positions, and he was doing well as an investor. Before becoming chief executive at VimpelCom, he held several managerial positions. He resigned as CEO at VimpelCom in the spring of 2015. A short time later, he was announced as the new CEO of shipping billionaire John Fredriksen based in London. However, when Norwegian police charged Lunder with corruption and arrested him in October 2015, Fredriksen withdrew the job offer (Lund, 2022). Jo Lunder was not the only executive in the telecom sector being chased for reluctance of intervening against potential corruption. Two executives at Telenor in Norway had to leave their positions after ignoring whistleblowers from VimpelCom, where Telenor had a substantial share of the ownership (Klevstrand et al., 2022). In Sweden, executives at Telia were also being chased for involvement in the Uzbek corruption (Schoultz & Flyghed, 2020).

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Risbakken, K., Klevstrand, A., & Trumpy, J. (2022b, September 26). Ga deler av formuen i gave – Ukjent hvor resten er (Gave part of the fortune as a gift—Unknown where the rest is), daily Norwegian business newspaper Dagens Næringsliv, pp. 14–15. Rooney, D., Leach, J., & Ashworth, P. (2014). Doing the social in social license. Social Epistemology, 28(3–4), 209–218. Saenz, C. (2019). Building legitimacy and trust between a mining company and a community to earn social license to operate: A Peruvian case study. Corporate Social Responsibility and Environmental Management, 26 (2), 296– 306. Sale, H. A. (2021). The corporate purpose of social license. Sothern California Law Review, 94 (4), 785–842. Schjelderup, G. (2020, February 1). Skatteparadis (Tax paradise), Store Norske Leksikon (Great Norwegian Encyclopedia). www.snl.no/skatteparadis Schoultz, I., & Flyghed, J. (2020, September). Denials and confessions: An analysis of the temporalization of neutralizations of corporate crime. International Journal of Law, Crime and Justice, 62, Article 100389. Schoultz, I., & Flyghed, J. (2021). Performing unbelonging in court – Observations from a transnational corporate bribery trial – A dramaturgical approach. Crime, Law and Social Change, Published Online. https://doi.org/ 10.1007/s10611-021-09990-x Shadnam, M., & Lawrence, T. B. (2011). Understanding widespread misconduct in organizations: An institutional theory of moral collapse. Business Ethics Quarterly, 21(3), 379–407. Sherer, J. S. (2022). Organizational commitment as a mediator between organizational climate and employee silence. Doctoral disseration. Walden University. Shores, M. (2010). Informal networks and white collar crime: An extended analysis of the Madoff Scandal , www.dspace.library.cornell.edu Simpson, S. S., Galvin, M. A., Loughran, T. A., & Cohen, M. A. (2022). Perceptions of white-collar crime seriousness: Unpacking and translating attitudes into policy preferences. Journal of Research in Crime and Delinquency. Stanland, C. (2021). Black canvas: How I reinvented my life after prison. Lioncrest Publishing. Sutherland, E. H. (1939). White-collar criminality. American Sociological Review, 5 (1), 1–12. Sutherland, E. H. (1983). White collar crime—The uncut version. Yale University Press.

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Trumpy, J., Risbakken, K., & Klevstrand, A. (2022a, September 22). Ordknapp om milliardsøksmål (Word of mouth about billion lawsuit), daily Norwegian business newspaper Dagens Næringsliv, pp. 10–11. Trumpy, J., Risbakken, K., & Klevstrand, A. (2022b, September 27). Avviser at han visste “noe var galt” i Estland (Denies that he knew «something was wrong» in Estonia, daily Norwegian business newspaper Dagens Næringsliv, pp. 4–6. Trumpy, J. Risbakken, K., & Klevstrand, A. (2022c, September 30). Ble varslet allerede I 2014—men holdt alt internt (Was notified already in 2014—But kept everything internally), daily Norwegian business newspaper Dagens Næringsliv, pp. 16–17. Uhl, A. (2022). Carceral experiences of white-collar offenders: Qualitative research design utilizing the offender-based definition and Pierre Bourdieu’s capital theory. Crime, Law and Social Change. https://doi.org/10.1007/s10 611-022-10038-x Waheed, A., & Zhang, Q. (2022). Effect of CSR and ethical practices on sustainable competitive performance: A case of emerging markets from stakeholder theory perspective. Journal of Business Ethics, 175, 837–855.

5 Legitimacy and the Corporate Social License

This chapter discusses the key strategic issues underpinning the social license to operate. Important issues include the relevance of various sources of license authority, relevant substance of the social license, and the value of gaining the social license. Furthermore, the perspectives of social license contract and moral legitimacy are covered in this chapter. Moral legitimacy refers to acting in accordance with common interests, here it is argued that moral legitimacy entails intrinsic value and helps executives convince a firm’s stakeholders and the general public of the ethical acceptability of an institution or its activities or projects (Melé & Armengou, 2016: 729). Further close analysis of this key area covers corporate business trustworthiness, social license contract perspectives alongside moral legitimacy and the intrinsic critical value of obtaining social license. This chapter concludes with an illustrative case study on controversial coal seam gas exploration in New South Wales, Australia. The concept of a social license to operate connects “social expectations, business self-regulation, and governmental soft and hard law” (Buhmann, 2016: 699), where soft law refers to non-binding measures, while hard law refers to binding measures. For example, each state has a fundamental obligation to protect all individuals against human rights © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_5

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violations, not only against those violations committed by the state but also those committed by business enterprises. However, many states fail in this duty, and social expectations may go beyond the state’s obligation. A corporate social license exists when the corporate business activity is seen as having the broad ongoing approval and acceptance of society to be conducted (Panda & Sangle, 2019). The social license to operate indicates that business activities are considered socially legitimate (Saenz, 2019: 296): The expression is often used when a company’s activities may face disapproval – especially when such disapproval could result in resistance that could harm their business interests. Failure to engage all segments of the community, to inform them, and to solicit their opinions is often seen as evidence of illegitimacy by those who are excluded.

A behavior that can lead to a company gaining legitimacy might be characterized by listening to community concerns and reacting appropriately to those concerns, observing the official and unofficial local norms, customs, and practices, spreading awareness about the company and what it does in terms of benefits to the community, and soliciting participation of stakeholder representatives in planning and decision-making (Saenz, 2019). The value of a social license can be understood within institutional theory where the main goal of organizations is to survive. This requires not only economic success but also social acceptance (Saenz, 2019). Institutional theory suggests that opportunities are shaped by individuals, groups, other organizations, as well as society at large. The theory argues that business enterprises are much more than simple tools and instruments to achieve financial goals and ambitions. The theory says that organizations are adaptable systems that recognize and learn from the environment by mirroring values in society (Kostova et al., 2008; Pillay & Kluvers, 2014; Shadnam & Lawrence, 2011). The theory of social license suggests that legal and social obligations and expectations provide separate but interacting issues for assessing the extent to which business conduct is aligned with norms in the community. While each business enterprise serves a number of purposes in the

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community such as employment and goods and services, the business conduct has to meet both legal and social requirements to operate. The community does not exist to serve the business enterprise. Rather, each corporate entity exists to serve the community with benefits without violating the legal and social license. The social license can be part of a bottom-up as well as an outside-in effort to enhance the social control of business activity (Haines et al., 2022). Business enterprises attempt to respond to indicate that their activities are not only legally legitimate but also socially legitimate (Saenz, 2019: 296): The expression is often used when a company’s activities may face disapproval – especially when such disapproval could result in resistance that could harm their business interests. Failure to engage all segments of the community, to inform them, and to solicit their opinions is often seen as evidence of illegitimacy by those who are excluded. It is typically preferable for companies to communicate directly with the masses and not rely solely on those occupying leadership positions.

As mentioned in the introduction, Haines et al. (2022) studied community pressure against unconventional gas exploration by a large resources company in New South Wales (NSW) in Australia. While approaches by various stakeholders were successful in reducing corporate harm, a number of issues emerged related to authority, meaning, and value. For example, an issue was to identify who was entitled to represent the community. Those chosen and accepted to represent the community might be those considered mature enough for the role, while critical and eccentric voices can be deemed unsuitable.

Corporate Business Trustworthiness Stakeholders can grant the company a social license to operate if they find the company trustworthy (Haines et al., 2022). The extent of trustworthiness considered by stakeholders represents a judgment that impacts their willingness to accept risk and vulnerability. As argued by Campagna et al. (2022: 1383), one of the most immediate and important issues

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stakeholders consider during an initial interaction with the company is whether the company is trustworthy, since this judgment impacts their willingness to accept corporate business actions. Making a good first impression is considered important by many people. Campagna et al. (2022) studied the role that initial trustworthiness beliefs play in repeated exchanges. Initial trustworthiness judgment can become permanent for a long time, thereby potentially biasing future perceptions of corporate business actions to align with the initial judgment. The study revealed that first impressions of trustworthiness may indeed have important implications for trust and cooperative behavior in the future. The study confirmed that the initial trustworthiness assessment continues to affect and dominate perceivers’ relational behaviors. Initial beliefs can bias perceivers toward a belief-consistent interpretation where belief-inconsistent information is perceived as noise. People will mainly recall information that affirms their initial beliefs. Trust is thus an important determinant for the social license as stakeholders may perceive that they are vulnerable to a company’s business activities (Saenz, 2019). Trust refers to the acceptance of vulnerability to another’s actions (Baer et al., 2021; Haines et al., 2022). Kim et al. (2009: 401) defined 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. Trust seems only necessary “in situations in which there exists uncertainty with regard to the other party’s future behavior” (Andersen, 2022: 13), and 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.

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Trust implies that vulnerability is accepted based upon positive expectations of the motives and actions of another. Controlling a trusted person or company 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 or company is doing. Trust can hardly be established by formal, legalistic measures. Formal control mechanisms are a window dressing approach that might in fact 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 this thought, commonly accepted rules are fundamental for trustworthiness since they make behavior more predictable.

Trust is a dynamic phenomenon in a relationship between the entity that is trusted and the other that trusts the entity. Trust is a matter of expectation causing willingness and intention to be vulnerable if necessary. 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 due to more resources being allocated to a trustee, as well as expectations from the trustor. 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):

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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.

The term trustor refers to the actor whose trust has been strengthened, unchanged, or violated since the actor 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 the entity is the target of the trustor’s trusting beliefs, intentions, willingness, expectations, and behaviors (Kim et al., 2009). Trustworthiness as studied by Campagna et al. (2022) used a threeitem scale to measure integrity and three items to measure benevolence. Integrity refers to taking responsibility for the representation of the self and one’s commitments, while benevolence refers to the quality of being well meaning. An example of an integrity statement says that when a company promises something, the trustor can be certain it will happen. An example of a benevolence statement says that when making decisions that affect the trustor, the company tries to take the trustor’s needs and feelings into account.

Social License Contract Perspective The concept of the social license to operate can be studied from the broader normative perspective of contractarianism where a social license is a contractarian basis for the legitimacy of a company’s activities. The social license indicates that company activities are considered as legitimate in the eyes of stakeholders in society. The term social license often refers to tacit consent on the part of society, but it can also refer to explicit consent toward the activities of the business. More frequently, however, seem incidents of explicit reactions to be lack of consent where stakeholders express disapproval of business activities. From a business standpoint, it is “preferable that corporate activities that will have a significant social or environmental impact are broadly accepted or

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even acclaimed by society as a whole and by the communities that are impacted in particular” (Demuijnck & Fasterling, 2016: 676). Contractarianism builds on the social contract perspective (…) In general, the basic idea of the contractarian method is to explain or to justify an institution or a moral or political rule by referring to the consent of all persons concerned with it. The position in which people give their consent is usually called a state of nature (…) The primary appeal of contractarianism lies in the simplicity as well as the compelling force of the justifications that are derived in a contractarian way: We should respect them because we freely agreed to them.

In a rational sense, a contract is an assumed agreement made by people whose judgment is not distorted by prejudice or emotions. In a looser perspective, a contract is what people might agree to. The contract creates some kind of binding force, some kind of commitment from contractual partners. It is assumed to be mutually advantageous. However, contracts can potentially only prevent negative events and not create positive events beyond what is assumed as the subject and the content of the contract. According to social contract theory, transactions can involve actors whose ability to comprehend their moral implications is inherently limited. A formal contract, guidelines, and regulations have the potential of preventing negative deviant behavior, but they have not the potential of causing any positive efforts on the part of agents, according to contract theory. Luo (2002) even suggests that contracts such as employment arrangement encourage opportunistic behavior that is in line with agency theory. Agency theory is primarily used for situations where two parties enter into some kind of formal contract, but the reasoning of the theory is also relevant when no formal contract is signed or what might be more relevant, the contract does not deal with the issues brought forward by agency theory. An agency relationship arises whenever an individual or an organization is authorized to act for or on behalf of another individual or organization. Agency theory is a management perspective sometimes applied to crime, where normally the agent, rather than the principal, is in danger of committing crime. For example, a chief executive officer

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(CEO) may commit financial crime as a white-collar offender to benefit themselves (occupational crime) or to benefit the organization (corporate crime). The board as the principal is considered unable to control activities of the CEO. In agency theory, there are three problems: preferences (principal and agent may have conflicting values or goals), knowledge (principal and agent may not have the same information and insights), and risk (principal and agent may not have the same kind of risk aversion or risk willingness). Similarly, the consent given in the social license to operate based on a social contract as suggested by Demuijnck and Fasterling (2016) can suffer from the same weaknesses as other informal as well as formal contracts tend to suffer from.

Corporate Moral Legitimacy Perspective Moral legitimacy refers to acting in accordance with common interests. Melé and Armengou (2016: 729) argued that “moral legitimacy entails intrinsic value and helps executives convince firm’s stakeholders and the general public of the ethical acceptability of an institution or its activities or projects”. The social license to operate is then the social approval of those affected by the institution or its activities or projects. Moral legitimacy provides ethical support to the license. As argued by Saenz (2019: 297), moral legitimacy is based on a positive normative evaluation of the company and its business activities: Moral legitimacy hinges on whether a particular action is viewed as acceptable by a company’s powerful stakeholders. Moral legitimacy is comprised of four aspects: consequential, procedural, personal, and structural legitimacy.

Saenz (2019) distinguished between pragmatic, moral, and cognitive legitimacy as described earlier in this book, where also the four aspects of moral legitimacy were described. Saenz (2019) evaluated moral legitimacy by the extent of benevolent concern, security, and consensus-based approach. Melé and Armengou (2016) emphasized the importance of

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moral legitimacy that might be achieved if the intended end of business operations contributes to the common good, if the means of business operations are acceptable, if stakeholder concerns are respected, and if possible risk of damage is minimized. They evaluated moral legitimacy by four criteria: (1) contribution of the project or activity to the common good in a better way than other alternatives, that is the intended end, (2) morality of the means and procedures employed, that is the actions chosen, (3) ethical evaluation of the situation including stakeholder concerns and needs, that is the common good, and (4) ethical evaluation of reasonably foreseeable consequences associated with the project and how to minimize possible damage and risk, that is a tradeoff between costs from foreseeable negative consequences and benefits from expected business performance. Melé and Armengou (2016) conducted a case study of a project near the foundations of a historical church in Spain. The project was the construction of a rail tunnel for a high-speed train near the foundations of the Sagrada Familia, a well-known monumental church in Barcelona. The project was highly controversial (Melé & Armengou, 2016: 736): The neighborhood around the Sagrada Familia and even along Mallorca Street was strongly opposed to the plan. Numerous banners appeared in windows and on balconies in the streets close to the route of the tunnel, and to further the protest, an association was formed to demand going back to the initial plan. Afterwards political parties entered into the controversy.

In the research by Melé and Armengou (2016), a distinction was made between vested and non-vested stakeholders. The vested stakeholders were those with both a voice and a vote in granting of a social license to operate. In this case this was government officials and company representatives. The non-vested stakeholders were those with a voice but no vote. In this case this was a number of associations, action groups, and citizens. The four criteria for moral legitimacy were applied as follows: (1) the project would contribute to the common good in terms of infrastructure connecting people, (2) the use of a tunneling machine was the least aggressive manner of conducting the project, (3) the extent to which the

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situation was carefully evaluated in terms of emotions and reactions was not clear, and (4) the consequences deriving from the project in terms of damage or risks were evaluated and minimized. It was decided to carry out the project by tunneling in the area for the railroad. The project did not produce the incidents that protesters had predicted. Melé and Armengou (2016) argued in their conclusion that their four criteria avoid the perspectives of particular interests, fear without a rational reason, or what is termed not-in-my-back-yard syndrome. They argued in favor of moral legitimacy based on substantive justice and the common good by application of the four criteria.

Relevant Sources of License Authority Sources of license authority are a combination of people and knowledge. The main people sources of license authority are bottom-up activists and outside-in activists. The bottom-up approach to executive compliance focuses on organizational measures by employees to make wrongdoing less convenient for potential offenders (Haines et al., 2022). Compliance refers to obeying the formal and informal rules, regulations, and norms in force at a given time and place (Durand et al., 2019). The main knowledge sources of license authority are insights, reflections, and assessments of benefits and harm (Rooney et al., 2014: 210): Other critical components include the reputation of the organization, previous relationships with communities, the level of transparency the organization operates with, and whether the organization is trusted to do the things they say they will. Social license relies critically on social aspects of knowledge diffusion, and contested “truth” claims often based on radically different ontologies, epistemologies, and axiologies.

Control by stakeholders is concerned with a negative discrepancy between the desired and current state of affairs. Control mechanisms attempt to reduce the discrepancy through adaptive action in the form of behavioral reactions (Direnzo & Greenhaus, 2011). Control mechanisms

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attempt to influence and manage the process, content, and outcome of work (Kownatzki et al., 2013). Control involves processes of negotiation in which various strategies are developed to produce particular outcomes. Control is therefore a dynamic process that regulates behavior through a set of modes, rules, or strategies (Gill, 2019). There are various types of control mechanisms with various targets (Chown, 2020: 752): For example, prominent frameworks delineate controls based on whether they are formal or informal, coercive, normative, peer-based, or concertive. Controls are also divided based on whether they target employees’ behaviors by implementing processes or rules that ensure individuals perform tasks in a particular manner, target their outputs by assessing employees based on measurable items such as profits or production, or target the inputs to the production process by controlling the human capital and material inputs utilized by the organization.

At its core, top-down control refers to the manner in which “an organization’s managers can use different types of control mechanisms – such as financial incentives, performance management, or culture – to monitor, measure, and evaluate workers’ behaviors and influence them toward achieving the organization’s goals in efficient and effective ways” (Chown, 2020: 713). Similarly at its core, bottom-up control refers to the manner in which organizational members can use different types of control mechanisms—such as whistleblowing, transparency, resource access, or culture—to monitor, measure, and evaluate executives’ avoidance of deviant behaviors and influence them toward achieving the organization’s goals in efficient and effective ways. While the hierarchical structure remains with executives at the top of the organization in charge of the business, bottom-up control is a matter of stakeholder involvement in compliance. While top-down control is often a formal and rigid system, bottom-up control can be an informal and flexible system based on social influence (Haines et al., 2022: 185): Criminalization, foundational analytical territory for criminology, forms part of a ‘bottom up’ strategy where it becomes ‘social property’, untethered from law and formal criminal justice. Criminalization as social

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property comprises a central element of ‘social control influence’ over corporate harm. This is justice in the vernacular with media, social movements and citizen watchdogs exerting pressure, demanding change and bringing business to account.

When noticing wrongdoing at the top of the organization, improvisation might be a key capability for organizational members and citizen watchdogs. Capability refers to the ability to perform (Paruchuri et al., 2021), while improvisation refers to the spontaneous process by which planning and execution happen at the same time (Mannucci et al., 2021). Rather than following formal reporting lines to people who are not trustworthy, improvisation is a matter of spontaneous action in response to unanticipated occurrences, in which individuals find a way to manage the unexpected problem. Bottom-up approaches have been discussed so far in this section. It is a matter of people in the organization who prevent potential offenders from wrongdoing and who detect offenses and offenders having committed misconduct and crime. A different approach in the same line of reasoning is the outside-in approach where outsiders rather than insiders prevent and detect wrongdoing in the organization. The outside-in approach involves various stakeholders in the community such as citizens, media, unions, politicians, and action groups. The term stakeholder refers to someone with an interest or concern in something, especially in business (Gomulya & Mishina, 2017). A stakeholder is someone who can affect or be affected by the business, and a stakeholder is someone who associates with the business and does or does not derive utility from the association (Lange et al., 2022: 9): Utility here describes the satisfaction, gratification, or need fulfillment that a stakeholder receives by virtue of interacting with or being associated with the business.

A stakeholder typically injects some kind of resource into the business with the expectation of receiving some form of return. Nason et al. (2018) argued that a stakeholder is someone who derives their own identity to some extent from attributes of the business. Lange et al.

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(2022) argued that a stakeholder should not necessarily be viewed as someone having a single-minded focus on their own utility but rather as someone having an outcome in mind that often will be of utility for groups of people based on a kind of solidarity. Nason et al. (2018: 259) suggested that a stakeholder provides “intense feedback when there are major discrepancies between their expectations and the firm’s actual social performance”. The rise of social media, non-government organizations, as well as the knowledge level among citizens has led to the strengthening of stakeholder demands (Panda & Sangle, 2019: 1085): As a result, firms often find themselves in conflicts. The cost of these conflicts for the firm is the opportunity cost of future projects due to loss of reputation, and for the stakeholders, it is the loss of opportunities, both social and economical, that could have been brought by the projects. The tension between firms and stakeholders creates a dynamic environment where following compliance is not enough, and social acceptance is equally important as government licenses. Such an acceptance is termed as ‘social license to operate’ (SLO). SLO exists when a project is seen as having the broad, ongoing approval and acceptance of society to conduct its activities.

Panda and Sangle (2019: 1086) further argued that there is a growing awareness among stakeholders of their power to make their voices heard: The rise of social media has resulted in organized movements against corporations as well as in the demand for greater transparency from firms. The number and type of stakeholders for a firm are no longer confined in their immediate surroundings. Most multinational corporations have ‘global stakeholders’ who may not directly have a stake in the firm but are interested in its social, economic, and environmental impacts. Firms practicing opaqueness are at a greater risk than those open to stakeholder inspection.

Panda and Sangle (2019) found that SLO is deeply rooted in the stakeholder theory. It is a theory of business ethics to promote managerial matters during different environmental situations. According to Waheed

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and Zhang (2022), the theory supports social issues by assisting the strategic decisions of organizations. It takes into account the evolving role of stakeholders, from being bystanders in a company to being a part in the decision-making processes (Panda & Sangle, 2019). However, the monitored enterprise might find it easier to challenge the authority of outsiders compared to insiders who belong to the enterprise. Outsiders can be challenged whether they count in authorizing or denying the company their social license. Outsiders can be challenged whether they are entitled to speak based on their claimed membership and representation of the community. One potential source of license authority is activist groups and nongovernment organizations that take cases to the courts. While a case is pending, the accused company tends to become passive by awaiting the outcome of the trial. However, bringing a case in front of a judge is only a matter of legal license to operate. The judge is to apply the law to the issues and cannot apply other criteria that citizens are concerned about. Another potential source of license authority is name-and-shame lists where academics consider firms that are ethical and compliant versus firms that are not ethical and compliant. When Russia invaded Ukraine in February and March 2022 (Grønningsæter, 2022), the Yale School of Management in the United States updated on a daily basis a list of companies that had terminated their business in Russia as well as those that remained. The two lists were for a while updated every hour by Professor Jeffrey Sonnenfeld and his research team at the Yale Chief Executive Leadership Institute to reflect new announcements from companies in real time (Sonnenfeld, 2022a, 2022b).

Important Substance of Social License Sources of license authority is an issue of who has the right to speak and to be listened to, while the substance of social license is concerned with what they can and cannot say in terms of the content of their messages to grant or stop social permission for business activity. Furthermore, the substance of messages might be conflict or cooperation, where both are

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understood to be important aspects of influence. Haines et al. (2022: 189) referred to cooperation: When a social license is understood as the development of trust, reciprocity and problem-solving between the community and the company, the aim of the social license is one of cooperation moving towards a shared goal.

Both by conflicting and cooperative messages from license providers by authority, the messages are a vehicle of social control. The vehicle provides criminological insights into criminalization, where two requirements are usefully emphasized. The first requirement for criminalization is that people think it is wrong what the company intends to do, is already doing, or has already done. The second requirement is that potential or actual wrongdoing deserves a consequence in terms of a warning, a sanction, or a punishment. In the most fundamental sense, crime manifests within acts that are considered socially offensive or reprehensible and require a collective response—censure or punishment. As the term social license suggests, it is predominantly centered on permission for business activity that is not regulated by the law. The legal license refers to laws that describe wrongdoing and punishment. In the absence of laws for many instances and incidents of wrongdoing, the social license fills the gap by substance in messages from sources of license authority. The social license refers to “the acceptance or approval by the local – if not indigenous – communities and stakeholders of a business enterprise’s operations or projects in a certain area” (Saenz, 2019: 297). The social license is “the set of demands and expectations held by local stakeholders and broader society about how a business should operate”, and “a license is then said to be granted if the business is deemed to have met these demands and expectations – and thus is viewed as being socially acceptable” (Hurst et al., 2020: 1). The social license is “a social construction to which various stakeholders contributes” (Baba et al., 2021: 248). The social license is an expression “often used in the context of a possible disapproval of their activities, when such disapproval may result in resistance that could harm business interests”, and the expression “refers to mainly tacit consent on the part of society toward the activities

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of the business” (Demuijnck and Fasterling, 206: 675). Further scholarly definitions of the expression were presented in the introduction. A distinction can be made between the static and the dynamic vision of social license to operate. The static vision suggests that obtaining the license mainly results from acceptable practice, while the dynamic vision suggests a continuous exchange to influence practice (Baba et al., 2021). The dynamic vision is a matter of maintaining relationships with stakeholders (Hurst et al., 2020: 2): While operational impacts will play a pivotal role in determining whether an entity is perceived as trustworthy, research also suggests that procedural fairness, quality of contact, promise keeping, and the development of a shared agenda are important in supporting organization-stakeholder relationships.

Procedural fairness in the quote refers to the extent a business listens to and respects opinions of relevant others. Quality of contact refers to the stability and content of relational exchanges between the business and relevant others. Promise keeping refers to authenticity in voice and action. Shared agenda refers to development of joint perspectives and values where the business can develop mutually supportive initiatives with the community and other stakeholders that are in line with expectations, aspirations, and perceptions (Hurst et al., 2020). According to Rooney et al. (2014: 209), a social license refers to “an informal agreement that is granted by communities and relevant stakeholders to an organization or industry working in the local area”: Organizations holding a social license may not even recognize they have one. However, when a social license is removed it becomes obvious to all, incurring both human and economic costs that sometimes can be irreparable.

There are various reasons why certain kinds of wrongdoing are not regulated by laws. One reason is that law making is often lagging behind citizens’ perceptions of what is so wrong that it should be punished. Another reason is that law makers do not consider some forms of wrongdoing serious enough to regulate the matter by law. Furthermore,

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inefficient law enforcement and missing links in the criminal justice system can cause an absence of a clear institutional authority even when there are relevant laws. The content of a social license is permission for business activity when requirements in messages from stakeholders have been met (Haines et al., 2022: 186): This social permission and the currency of the term provide a potentially important enabler for communities to control the activities of the business in their midst and reduce associated harms. At the same time, the absence of a clear institutional authority underpinning the social license means that its legitimacy as a business requirement can be challenged. The centrally social character of the social license also means that tensions around what is and what is not socially desirable business conduct often emerge simultaneously and can settle on the same activity. Legal and regulatory regimes are ordered around specific harms. A relatively straightforward orientation to hold a business to account for specific harm under the law (safety, environmental damage, fraud) from a social license orientation becomes a multi-faceted struggle over what is desirable, what is undesirable and who has the right to decide whether the business activity should or should not proceed.

Therefore, the social license is not as straightforward as the legal license. Rather, the acceptance of a company or industry’s business practices and operating procedures depends on opinions in the community that might diverge between corporate employees, corporate executives, shareholders, investigative journalists, public activists, politicians from various political parties, and the general public. The messages from these kinds of sources might be questions in terms of their legitimate authority, their content, as well as their form as confrontational or cooperative. Nevertheless, the overall ambition of a social license is to bring about agreement between company and community and assert the license value as essential to industry operations. Given the latter criteria of being essential to industry operations, both authority of actors and substance of their opinions become a matter of power and influence. Bottom-up initiatives as well as outside-in initiatives only become determinants for granting social license if the actors

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are able to be recognized as essential to business and industry operations. From the perspective of the potentially accused business, it is important to listen to the community in assisting the business in obtaining the permission of the community they work in and interact with through improving company relations and behavior toward representatives of the community. Since social license is not within a company’s control, corporate “entities ‘earn’ social license through organizational actions that are both justified in the ‘eyes of society’ and not achieved through manipulation” (Sale, 2021: 821). However, some businesses may choose a path of ignoring, manipulating, or challenging the substance of social license (Haines et al., 2022: 187): Critics of corporate use of the term argue that it represents a shallow form of reassurance where companies merely pay lip service to community concerns. It is used to legitimate company operations without serious attempts to reduce and manage the problems those operations engender. Similarly, it may be used by politicians with a business-oriented agenda to demonstrate that social issues have been considered, despite decisions being made against community desires. Other work shows how the processes ostensibly oriented around obtaining a social license and mutually beneficially agreement can be strategies for maintaining control used by companies to ‘discipline’ communities by marginalizing critical voices in association with professions from corporate engagement personnel to anthropologists. A central element of these company management strategies is influencing decisions regarding who represents the community.

While associating with those community members who support the business, the company may distance itself from community members who disapprove of the business. This is in line with Sutherland’s (1939, 1983) differential association perspective, where wrongdoers associate with those who agree with them and distance themselves from those who disagree with them. Yet another ignorance strategy toward stakeholders is window dressing that refers to the act or the instance of making something appear better than it actually is (Desai, 2016; Eberl et al., 2015).

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Sale (2021) defined three stages of social license substance: legitimacy, credibility, and trust that correspond to acceptance, approval, and identity. Legitimacy refers to a belief that a business has the basic right to operate. Legitimacy is an assessment of the appropriateness of an entity’s actions (Bundy & Pfarrer, 2015; Fitzgibbon & Lea, 2018). Legitimacy implies that the company and its activities are reasonable and acceptable. According to Demuijnck and Fasterling (2016: 678), legitimacy “refers to the congruence between social values associated with or implied by activities and the norms and acceptable behavior in the larger social system”. Legitimacy implies that the activities are neutral or desirable, proper and uncontroversial, and appropriate within a socially constructed space of norms, values, and beliefs. In criminology, a typical characteristic of white-collar crime is the superficial appearance of legitimacy (Benson & Simpson, 2018). Legitimacy comes from the Latin legitimus meaning lawful (Melé & Armengou, 2016: 729): Today, the meaning of legitimacy is also related with the acceptance or justification of the existence of an institution beyond ‘legality’ (pertaining to the law).

Legitimacy is then a matter of acceptance of business exercise of power in a justified manner. Sometimes three forms of legitimacy are discussed. First, pragmatic legitimacy is based on the self-interested calculations of a company’s most immediate stakeholders (Saenz, 2019: 297): Pragmatic legitimacy is based on the self-interests of the public and is most often exchange or influential in nature. Under exchange legitimacy, society supports a company’s policy based on the expected material benefits to the society, such as technological improvements or employment opportunities. Influential legitimacy is attained by being responsive to stakeholders and incorporating society’s wider interests into the company’s decision-making process.

Next, moral legitimacy is based on a positive normative evaluation of the company and its business activities (Saenz, 2019: 297):

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Moral legitimacy hinges on whether a particular action is viewed as acceptable by a company’s powerful stakeholders. Moral legitimacy is comprised of four aspects: consequential, procedural, personal, and structural legitimacy. Consequential legitimacy is result-oriented and is based on visible achievements such as increased employment, reduced emissions, and fewer numbers of workplace injuries. With procedural legitimacy, the focal point is not merely results of an action; rather, emphasis is placed on the morality surrounding the means to achieve a particular outcome (…) Structural legitimacy is based on the company’s identity and whether or not it forms a part of a ‘morally favored taxonomic category’, whereas personal legitimacy is dependent on the character of the company’s leaders.

Finally, cognitive legitimacy is based on a perception of the company as a natural phenomenon in the community compliant with established cultural norms (Saenz, 2019: 298): Cognitive legitimacy can be split into two elements: comprehensibility and being taken for granted. The former attempts to make society understand the company through providing logical and easily understandable explanations for its actions and plans whereas the latter relies on the very existence of the company being taken for granted as an integral part of the social fabric.

Melé and Armengou (2016) emphasized the importance of moral legitimacy that might be achieved if the intended end of business operations contributes to the common good, if the means of business operations are acceptable, if stakeholder concerns are respected, and if possible risk of damage is minimized. The next level of social license substance suggested by Sale (2021) is credibility that refers to the quality of being trusted and believed in (Gomulya & Mishina, 2017). It is a matter of approval by local communities, society, and stakeholders of a business enterprise’s activities (Demuijnck & Fasterling, 2016). Credibility builds on approval by stakeholders (Sale, 2021: 825):

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Credibility requires the prior existence of legitimacy. Here, however, the focus is on the company working with stakeholders to achieve more than just tacit approval. Instead, the company builds a relationship that involves initial trust and stakeholder voice in operations. Credibility, like legitimacy, requires action and interaction above the legally required line. For credibility to exist, the entity and the project must be ‘believable’, and the entity’s promises must be both realistic and achievable. Put differently, before an entity can earn credibility, the stakeholders must perceive it to be honest. In addition to honest and open communication, credibility requires deliverables. The company must have certain characteristics, and the community must believe it has them.

The final level of social license suggested by Sale (2021) is trust, which is a stronger, more fundamental form of relationship. Trust is the acceptance of vulnerability to another’s actions (Baer et al., 2021). Trust implies that vulnerability is accepted based on positive expectations of the motives and actions of the entity. Kim et al. (2009: 401) defined 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, causing potential harm to the trustor. 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.

Sale (2021) referred to the stage of trust as a transition from acceptance and approval to a state where the stakeholders identify with the entity. Stakeholders have confidence that entity actions will either be favorable or at least neutral to the community’s interests. At the stage of trust, interests of the company and the community seem aligned.

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Critical Value of Social License The value of a social license lies both in the defensive as well as the offensive dimensions. The defensive dimension is concerned with avoiding criticism and obstacles in business activities from skeptical representatives of the community. Executives do not like bad press and activist campaigns, and they want to avoid consumer reactions. Companies do not want critical attention from various supervisory authorities, and they would like to avoid becoming negative topics in municipal committees and government agencies. Companies want a social license that can “prevent demonstrations, boycotts, shutdowns, negative publicity, and the increases in regulation that are a hallmark of publicness” (Sale, 2021: 820). The defensive dimension is a matter and concern of violation of the license or even loss of the license. Such circumstances “can lead to serious delays and costs for organizations, reduced market access, boycotts or protests, community anger, increased regulations, loss of reputation, and, in extreme instances, the failure of a project, organization and/or industry” (Hurst et al., 2020: 1). For example, in the Netherlands, the loss of the social license to operate caused Groningen gas to stop its operations making substantial volumes of gas being left in the ground (Beukel & Geuns, 2019). Corporate enterprises certainly would like to avoid scandals, where a scandal refers to “an unexpected, publicly known, and harmful event that has high levels of initial uncertainty, interferes with the normal operation of an organization, and generates widespread, intuitive, and negative perceptions” externally (Bundy & Pfarrer, 2015: 350). A corporate scandal forces executives to make accounts, where an account refers to a statement made by the scandalized entity to explain negative behavior that has become subject to inquiry by stakeholders and outsiders (Gottschalk & Benson, 2020). A scandal can develop into a crisis, where a crisis refers to a fundamental threat to the organization, which is often characterized by ambiguity of cause, effect, and means of resolution (König et al., 2020). Scandals and following crises can cause the community explicitly to refuse to negotiate or cooperate

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with suffering enterprises. Generally, to avoid scandals and crises, enterprises would like to refrain from business activities that might stir up controversies (Demuijnck & Fasterling, 2016). The offensive dimension of social license value is concerned with benefits and advantages in business activities from supportive and enthusiastic representatives of the community. Executives do like favorable press, and they enjoy consumers’ expression of satisfaction. Companies want positive attention—or no attention—from various supervisory authorities, and they prefer to avoid becoming topics in municipal committees and government agencies, unless they are called upon as resources to solve state problems. As a resource, an enterprise can be an enabler of solutions preferred by politicians that they cannot accomplish without the help of the enterprise. Ideally as a resource, the enterprise has unique expertise in the field that can be applied to solve problems perceived as challenging in the community. The value of social license in the offensive dimension includes “the generation of legitimacy, trust, and credibility among stakeholders; improved corporate reputation; long-term business success; ongoing access to resources; improved market competitiveness; strengthened stakeholder relationships; and positive effects on employees” (Hurst et al., 2020: 1). Companies would like to strengthen their reputation and brands through positive public attention where the social license is a visible and clear manifestation of benefits exceeding costs and advantages exceeding disadvantages. Therefore, as argued by Haines et al. (2022: 187), “the high value placed on a social license” can be seen in the damaging effects of communities expressing their distrust and rejection of company activities as well as in the enabling effects when the company is defended by the community against outside criticism: A social license is a visible manifestation of a commitment to corporate social responsibility. The literature centers on promoting the importance of a fair process in business dealings with communities with reciprocity, listening and promise-keeping central to ensuring that companies not only are tolerated by communities but when problems arise, can be defended by those communities against outside criticism. The emphasis

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is on elucidating how companies can develop trust and acceptance both by local communities and more broadly within society.

The positive dimension of being defended by communities might include an enabler where the “social license can ‘make’ a business by contributing to its survival and success” (Sale, 2021: 821). The value of a social license thus refers both to avoidance of negative effects of rejecting corporate activities and to achievements of positive effects of accepting corporate activities. The value of a social license to operate is emphasized in situations where the enterprise is dependent on the local community as a source of labor and services, and where the enterprise will influence living conditions for both employees and others in the community. The value is also emphasized when the license will enable the enterprise to establish operations quickly, while a lack of license will cause delays of sometimes several years and potentially make the business activity much more expensive (Melé & Armengou, 2016). An example of delay caused by lack of social license to operate can be found in Norway where an actionist group was fighting a railroad project, first in the media and then in courts. The construction project had already been put on halt for one year when the case was on trial in Norwegian courts. The actionist group lost in a district court and later in a court of appeals. But they did not give up, so they appealed the verdict to the Norwegian Supreme Court. The issue was where the new railroad line should be located through a minor city in Norway (Bentzrød, 2022a, 2022b). Another recent example in Norway is wind turbine parks. Community members living close to one of the wind turbine parks complained that they could not sleep because of the noise from the turbines. One local resident said that she could not only sleep but she got a headache that developed into a migraine because of the noisy sound from the windmills. Then she was hospitalized for two days to recover (Jørgensen & Mannsåker, 2022):

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Several neighbors to Tysvær wind farm report serious health issues as a result of loud noise from the wind turbines. For Lillian Soma Øvregård in Hervik, it went so far that last week she was hospitalized for two days.

As a consequence of the massive community protests against the noise, the company operating the windmills stopped them daily from 7 pm to 7 am. Their financial loss from this decision was substantial. In the meantime, the company tried to identify technology that would reduce the volume of the sound and the harmful kind of sound so that it might be possible in the future to run the windmills also during nighttime (Jørgensen & Mannsåker, 2022). The value of a social license can be understood within institutional theory where the main goal of organizations is to survive. This requires not only economic success but also social acceptance (Saenz, 2019). Institutional theory suggests that opportunities are shaped by individuals, groups, other organizations, as well as society at large. The theory argues that business enterprises are much more than simple tools and instruments to achieve financial goals and ambitions. The theory says that organizations are adaptable systems that recognize and learn from the environment by mirroring values in society (Kostova et al., 2008; Pillay & Kluvers, 2014; Shadnam & Lawrence, 2011).

An Australian Case Study The research by Haines et al. (2022) was extensively referenced in this chapter. Their research was concerned with a case in Australia. Their data collection centered on the activities of one particular company prominent in coal seam gas operations in New South Wales. They found that the company framed the social license to appeal to different audiences such as investors in annual reports, local residents in local newspapers, and broader constituencies in national broadsheet. The sources of license authority included landowners who had to grant access to the coal seam operations to make business possible for the company (Haines et al., 2022: 191):

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In tangible terms, what the gas company offered landholders was annual payments for exploration wells sited on their land providing much-needed secure income to farmers particularly during periods of drought or low prices for their produce. The location of sealed roads built to enable company vehicle access could be negotiated so that they also assisted farmers. Negotiation could also proceed by way of comparison – namely that gas was less destructive than coal. Since exploration zones for coal often overlapped those for coal seam gas, allowing a gas exploration company access meant that it could be protected against encroachment by coal mines.

The substance of the social license rested on reciprocity and humanity, as well as on proper relationships, where the coal seam gas exploration business was being welcomed into and becoming part of the community (Haines et al., 2022: 191): The emphasis was on a fair process that would lead to a trusted relationship. Yet, the level of commitment required of the company to demonstrate their dedication to obtaining and maintaining social license ranged from a discrete transactional relationship bound in scope and time to an enduring relationship that encompassed a broad range of social and environmental concerns. The requirements to enable an enduring relationship were onerous. Community relations officers within companies could struggle to convince their superiors of the importance and depth of obligation that this level of commitment involved.

The value of the social license was an enhancement of as well as a replacement for law. The laws were not sufficient to regulate business activity. The social license represented and regulated more than what was legally permitted (Haines et al., 2022: 191): Those negotiating access for the company also understood that legality did not negate social expectations around company access to land. Company representatives felt that an a priori assertion of their legal right to access land would be met by anger and defiance. Relying on their legal rights would be seen as arrogant and likely to lead to lengthy court disputes; one argued ‘we never tested it (their legal rights)’. Unlike coal

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mines where land to be mined is acquired by coal companies, gas companies did not need to acquire land (as subsurface resources in NSW are owned by the state), but they did need access to land in order to access those resources.

Clarification of the sources of authority, the substance of the social license, as well as the value of the social license changed people’s attitude toward gas operations. The attitude changed from cautious openness, some conflict, and protest events to a mutual form of respect (Haines et al., 2022).

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6 Corporate Response to Normative Social Pressure

Corporate responses to normative social pressures are discussed in this chapter. Normative pressures refer to socially derived expectations where a plurality of institutional demands tend to be combined. Here a distinction is made between willingness and ability of organizations to respond to normative pressures. The willingness derives from issue salience which refers to the extent to which a stakeholder issue resonates with and is prioritized by management. The ability refers to available resources and capabilities that lead to an assessment of taking or not taking action on the issue. There is also a more general pressure from conflicts in society that call for a new form of “ethical” or “accountable” capitalism. Chapter coverage includes an examination of normative corporate corruption pressures, including responses to auditors, and perceived socioeconomic conflict toward an attempted remaking of capitalism toward social acceptance. Conformance can be conceptualized as delivering results within acceptable limits set by requirements (Pedersen et al., 2013). Corporate business conformance is the ability of corporate processes to meet the desired and required specifications indicated by stakeholders. The specifications represent an interpretation of what stakeholders expect. The term © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_6

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conformance has the same meaning as conformity and a similar meaning to congruence, agreement, and harmony. Conformance refers to meeting and potentially exceeding societal and other informal norms and obligations. Conformity characterizes voluntary actions that constitute a response to social and normative expectations. Lack of conformance represents violations of norms and expectations (Durand et al., 2019). As argued by Durand et al. (2019), conformance can either be symbolic or substantive. Symbolic conformance occurs in business activities that create an impression of meeting or exceeding norms and obligations without actually doing it. Substantive conformance, on the other hand, is present when corporate processes meet the desired and required specifications indicated by stakeholders. Typically, substantive conformance requires resource mobilization and organizational change that is not needed in the case of symbolic conformance (Nardi, 2022). Both compliance (alignment with rules) and conformance (alignment with norms) are important institutional theory perspectives. Compliance refers to meeting legal and other formal obligations, while conformity refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019: 300): (…) we posit that conformity characterizes voluntary actions that constitute a response to social and normative expectations not (yet) codified in standards and law, while compliance relates to formal mandatory regulations that typically enact only minimal conditions of institutional acceptability.

Pedersen et al. (2013: 358) suggested that three types of pressures promote homogeneity within organizational fields: “coercive (from regulatory bodies or holders of critical resources), mimetic (imitating successful organizations as a standard reaction to uncertainty), and normative (resulting from a professionalization of a field)”.

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Corporate Responses to Normative Pressures Normative pressures refer to socially derived expectations. Often, normative pressures are a multiplicity of different expectations from a plurality of institutional demands (Durand et al., 2019: 301): Normative pressures are the evaluative and obligatory dimensions of an institutional order that weigh on an organization to gain, maintain, and defend its legitimacy.

Durand et al. (2019) made a distinction between the willingness and ability of organizations to respond to normative pressures. The willingness derives from issue salience which refers to the extent to which a stakeholder issue resonates with and is prioritized by management. Issue salience is a perceptual outcome of a cognition process among decisionmakers. The ability derives from available resources and capabilities that lead to an assessment of taking or not taking action on the issue from a cost–benefit point of view. Therefore, even when an issue is highly salient, the enterprise that is subject to pressure may not respond. Based on the willingness and ability of organizations to respond to normative pressures, compliance, and conformity can be either symbolic or substantive (Durand et al., 2019: 300): Symbolic responses, on the one hand, describe managers’ promises to engage in practice changes they have not yet implemented or may not implement, as well as nominal actions to produce impressions of more material change. Substantive responses, on the other hand, refer to managers’ implementation of significant changes that involve material costs and are not easily reversible, such as revamping deep-seated practices and inefficient distribution processes, or buying and selling divisions. While such distinction in responses is well observed in practice and well established in the literature, bridging symbolic and substantive responses with conformity and compliance is a distinctive contribution of the model we propose.

An example of symbolism in many business organizations is the ceremonial adoption of a code of ethics potentially copied from other

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business organizations or implemented in the organizations by external consultants. An example of substance is managerial training after organizational change caused by normative pressures. In their model of organizational responses to normative pressures, Durand et al. (2019) proposed that a corporation may choose to respond to some issues but not to other issues based on varying assessments of issue salience as well as resource mobilization. Some issues might be met with complete inaction; some might be met with symbolic action, while other issues might be met with substantive action. In the model, assessment of an issue as salient is a necessary but not sufficient condition for initiating a response. The model assesses possible organizational responses along two main dimensions. The first dimension ranges from inaction via symbolic to substantive responses, while the second dimension ranges from non-compliance via compliance to conformity. Four main categories of responses then emerge: (1) symbolic compliance, (2) substantive compliance, (3) symbolic conformity, and (4) substantive conformity. The model assumes that substantive actions are more costly and less reversible than symbolic actions. Substantive actions require a greater extent of resource mobilization that can close other resorts in response to normative pressures. The main premise of Durand et al.’s (2019) model is that boards with management decide the relevant response to any issue of normative pressure after considering issue salience and cost–benefit ratio, where the latter should be less than one for taking action and more than one for not taking action. This premise leads some businesses to respond symbolically, while others respond substantively, since various businesses even in the same industry might have different salience perceptions and different cost–benefit calculations. For example, the normative pressure not only for financial performance but also for socioenvironmental performance might cause different salience perceptions and different advantages and disadvantages if addressed by various enterprises. The perspective of Durand et al. (2019) can be extended into a dynamic view of responses to normative pressures by comparison with companies hit by scandals. Gottschalk and Benson (2020) identified various paths of evolution of corporate accounts of scandals from exposure to investigation. Their analysis showed that denial of wrongdoing

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in several cases is replaced by the admission of wrongdoing and scapegoating, while obfuscation of wrongdoing is replaced by denial or acceptance of responsibility and scapegoating. Similarly, responses to normative pressures might initially take the form of inaction followed by symbolism. If the normative pressure continues and the issue is perceived as salient, while the cost–benefit ratio is considered less than one, then the next decision might be to implement substantive action. Issue salience is perceptual as the same issue may not only be differentially evaluated as salient across decisionmakers and organizations but also be differentially evaluated as salient by the same decision-maker and organization over time. The purpose of Durand et al.’s (2019: 314) article was to present a “theoretical model describing the organizational decision-making process through which organizations choose whether and how to respond to normative pressures”: By arguing that decision makers independently perceive the salience of an issue and concurrently evaluate the costs and benefits of mobilizing resources to address it, we highlight the sources of response heterogeneity across firms and across issues. These two factors account for both the willingness and ability of organizations to respond to normative pressures. In addition, they help to predict the different responses (inaction, symbolic and substantive conformity and compliance) that advance the neoinstitutional literature by streamlining and enriching the more traditional list of strategic responses to institutional pressures.

In the research by Durand et al. (2019), corporate compliance and conformity are both a matter of issue salience and profitability in terms of benefits exceeding cost. This might seem strange since lack of compliance represents violations of laws and regulations, while lack of conformity represents violations of norms and expectations. It seems more serious to violate laws than norms for corporations. However, if issue salience reflects the seriousness of non-compliance versus non-conformity, then the difference between the two is implicitly covered in the suggested model.

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Normative Corporate Corruption Pressure Normative pressure can work to cause corporate compliance and conformity which is the main theme of this book. However, normative pressure can also work to cause corporate misconduct and crime. An example is normative pressure for corruption as studied among top global companies by Orudzheva et al. (2020). They listed reasons why corruption can be institutionalized: isomorphic pressures comprising authority pressure, imitation pressure, and normality pressure; various components of the country business system and national culture characteristics; financial constraints and competitive intensity; human resource practices, as well as short-term as well as long-term financial goals. These reasons can, of course, be turned around to represent normative pressures for non-corrupt practices: isomorphic pressures in favor of compliance and conformance; national culture of anti-corruption; avoidance of financial constraints as well as competitive intensity; and short-term as well as long-term financial goals that are achievable without any wrongdoing. Orudzheva et al. (2020: 532) discussed the following normative pressures as drivers of corruption: • Prior performance: Organizations experience performance pressures not only for efficiency reasons but also to gain legitimacy and increased resources. Top global companies in particular often face greater scrutiny, and attempt to appease their stakeholders by showcasing results that meet or beat their prior year’s performance goals. Past performance sets the aspirational level for future goals. • Size: Organizational size is an important factor appearing in management research but often treated as a control variable. Evidence from previous research suggests that size is a predictor for decentralization, increases the span of control for supervisors, and increased complexity. Size is also considered as an important contingency variable affecting a firm’s competitive behavior. • Country-level perception of corruption: Country-level corruption is a factor taken into account by managers doing business in global environment who are in need to assess country risk for their foreign markets.

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• Interactive normative pressures: Having laid out the normative pressures that ensue from each of the three individual drivers of prior performance, size and country-level perception of corruption, we now move on to explain their joint interactive effect on corruption. Institutionalization as a process happens with participation of individuals. The personnel involved is a key to a normative isomorphic pressure that is a deeply collective process. Orudzheva et al. (2020) found in their analysis of top global companies that prior performance firm size appeared to make a difference in less corrupt countries so that larger better performing firms were prone to exhibit more corrupt behavior in less corrupt countries. Specifically, their research supported the following hypotheses: • When prior performance is higher, the relationship between countrylevel perception of corruption and organizational corruption is stronger in the sense that in countries with low perceptions of corruption, companies tend to engage in organizational corruption. This relationship varies with firm size in the sense that larger organizations have a stronger tendency to engage in organizational corruption. • For larger firms, the relationship between country-level perception of corruption and organizational corruption will be stronger. This relationship varies with prior performance. Therefore, large companies with high performance in countries with low corruption perception will commit more organizational corruption. The institutional perspective on corruption as studied by Orudzheva et al. (2020) illustrates how strongly company behavior is shaped by internal and external contingencies. There is a complexity of effects created by normative institutional pressures from norms and values.

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Normative Pressure from Auditors Auditors exercise normative pressure on management to avoid financial misstatements. If prior-period misstatements are detected, then “auditors play an important monitoring role in identifying and assessing the materiality of prior-period misstatements” (Christensen et al., 2022: 1). Although the decision of when and how to correct previously issued financial statements lies with management, auditors can act as deterrent to biased judgment by management. Auditor credibility is important as the assurance provided by the auditor can increase the credibility of financial reports. Since a sudden firm failure can be perceived as an audit failure (Beck et al., 2022), the auditor will exercise normative pressure on the firm to report correctly on a continuous basis. Avoidance of a sudden failure in the form of a scandal is important to the auditor and audit integrity and accountability, since a scandal refers to “an unexpected, publicly known, and harmful event that has high levels of initial uncertainty, interferes with the normal operation of an organization, and generates widespread, intuitive, and negative perceptions” both internally and externally (Bundy & Pfarrer, 2015: 350). Harvin and Killey (2021: 502) stressed the importance of professional skepticism, meaning that the auditor “maintains a neutral attitude pertaining to the adequacy of the client’s financial statements” while having a “questioning mind and suspension of judgment which indicates neither a trust or distrust of management”. Professional skepticism refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatements due to error or fraud, and a critical assessment of audit evidence. The recommendation is to ignore the potential superstar status of the CEO and maintain professional skepticism. One aspect of being skeptical in audit work relates to the frequent high status, sometimes even heroic or superstar status, of the chief executive officer (CEO) in the client organization. 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

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of a subjective assessment process (McClean et al., 2018). High-status 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 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.

Harvin and Killey (2021) highlighted the potential effect a superstar status of the CEO can have on the auditor. Their study found that superstar status might have a negative impact on the risk assessment that auditors conduct. Zager et al. (2016: 697) highlighted the auditor’s role and responsibilities in the fight against fraud as the auditor is “responsible for obtaining reasonable assurance that the financial statements taken as a while are free from material misstatement, whether caused by fraud or error”. They argued that the auditor is responsible for maintaining professional skepticism throughout the audit and for awareness of the potential for management to override controls. Hurley et al. (2019: 32) found that “removing auditors’ economic accountability to managers and replacing it with (…) accountability to investors significantly increases audit quality”. Investors can then exercise normative pressure on management. Arifin (2022) studied determinants of the effectiveness of audit procedures in revealing fraud. He found statistically significant support for the effect of professional skepticism of investigative auditors on the effectiveness of audit procedures in revealing fraud. The supported hypothesis stated that the professional skepticism of forensic auditors has a positive effect on the effectiveness of audit procedures in disclosing fraud. Exercising normative pressure is not only a professional obligation but also a self-interested action by the auditor. Fraud examination reports

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by corporate investigators frequently criticize auditors for failing, which reduces the credibility of each auditor and the audit firm. In a case in Norway, two auditors at KPMG who did not apply professional skepticism but instead were almost blinded by the heroic status of the chief executive at the audited firm were sentenced to prison together with the chief executive officer and the chief financial officer.

Call for New Form of Capitalism The call for a new form of capitalism has come from a number of scholars in recent years. In 2022, the journal Academy of Management Review published a special issue on new theoretical perspectives on market-based economic systems. The special issue authors Barney and Rangan (2022: 210) argued that a mounting list of concerns was testing the limits of and trust in conventional capitalism: “climate change and depleted ecosystems, declining labor share in income and rising concentration of wealth and market power, worrying lags between advances in technology and worker skills, immoderate consumption and declining health spans, precariously globalized production and supply chains, data privacy, and the rise of nationalism”. Markets may be efficient, but they are not sufficient. The decentralized market system is incomplete but not fundamentally invalid. Therefore, the mainstream system of markets does not necessarily need to be discarded, but it needs to be repaired and further developed. Changes need to reflect fairness, well-being, gender equity, balance of government and business, balance between work and family, transparency in business, balance of exchanges and interdependencies in international affairs, and the social license to operate. Reducing the trade-offs between financial and social goals can pave the way for a new form of capitalism. Traditionally, shareholder value maximization has been the dominant executive business practice for almost as long as capitalism has existed. It is the owners’ interests that have preference above and sometimes to the harm of others’ interests. However, scholars have started to question single-purpose companies. The wider responsibility toward various stakeholders has emerged as an interesting

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avenue for scholarly reflection. The social context of business has started to shift (Battilana et al., 2022). The pursuit of social goals requires a company to take actions both inside and outside the company (Battilana et al., 2022: 238): Social goals may be as diverse as lifting poor clients or suppliers out of poverty, ensuring employees’ well-being, developing eco-friendly technologies, promoting healthy living, or protecting the environment. At a minimum, social goals entail not knowingly doing anything that could harm stakeholders and rectifying any harm that companies cause to their stakeholders if or when harm is discovered and brought to their attention. They can also take more ambitious forms of willingly engaging in behaviors that produce value for society.

Battilana et al. (2022) formulated the following research propositions regarding trade-offs in dual-purpose companies that have both financial goals and social goals: • The intensity of the financial/social trade-offs experienced by dualpurpose companies increases with the level of the economic liberalism of the institutional setting in which they operate. • Holding the level of economic liberalism constant, the more specific and explicit the financial and social goals of a dual-purpose company are, the lower the intensity of the financial/social trade-offs experienced by the company. • Holding the level of economic liberalism constant, the longer the time horizon of financial and social goals of a dual-purpose company, the lower the intensity of the financial/social trade-offs experienced by the company. • Holding the level of economic liberalism constant, the more that top executives of a dual-purpose company are socialized in both financial and social logics, the lower the intensity of the financial/social tradeoffs experienced by the company. • Holding the level of economic liberalism constant, the more the attention of the board is focused on the achievement of both financial and social goals, the lower the intensity of the financial/social trade-offs experienced by dual-purpose companies.

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• Holding the level of economic liberalism constant, the more organizational members of a dual-purpose company are incentivized to attain both financial and social goals with moderate powered incentives, the lower the intensity of the financial/social trade-offs experience by the company. The core of these research propositions relates to the level of economic liberalism. Liberalism is a matter of private business interests dominating public community interests. The state does not interfere in the markets where business enterprises compete with each other. As suggested in the first research proposition, higher levels of economic liberalism are associated with higher levels of intensity of the financial/social trade-offs that make the pursuit of social goals more difficult. Therefore, as argued by Battilana et al. (2022), in order to reduce the financial/social trade-offs, economic liberalism should be replaced by a new form of capitalism with dual-purpose companies. Battilana et al. (2022) explored the issue that “business enterprises in the twenty-first century can and ought to do more than solely maximize the wealth of owners or shareholders” (Barney & Rangan, 2022: 213). Trade-offs in dual-purpose companies underline the role of governance in new organizational forms. Along the same line of reasoning regarding organizational forms for the future, Berti and Pitelis (2022) discussed closed versus open team production, the new cooperative firm, and hybrid advantage. While closed team production companies bring “their most important resources and assets within a firm’s boundary”; open team production companies “access these important resources and assets from outside the firm’s boundary” (Barney & Rangan, 2022: 213). Berti and Pitelis (2022: 309) assessed “the comparative efficiency advantages and disadvantages of capitalist versus cooperative firms using team production as a frame of reference”. They viewed capitalism mainly from the perspective of efficiency, while Lucas et al. (2022) and others viewed capitalism from the perspective of social harm and social acceptance, as discussed later in this chapter. According to Berti and Pitelis (2022: 310), a capitalist firm has only shareholders as “the sole residual claimants”, and “in other words, they are the economic agents who can legitimately appropriate the firm’s

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surplus and have the authority to select its top management team”. While interesting, this definition of capitalism is certainly not mainstream. Capitalism is an economic system in which persons privately own trade, industries, firms, shops, and means of production and operate these enterprises for profit. Marxist criminology views the competitive nature of the capitalist system as a major cause of financial crime (Siegel, 2011). A cooperative firm is “owned by members who participate, with equal voting rights, in the governance and management of the enterprise and benefit directly from their activities” (Berti & Pitelis, 2022: 310). A cooperative firm is considered to be more democratic than a capitalist firm that tends to apply the hierarchical structure of an organization. Cooperative firms are typically found within mutual insurers, procurement for consumption, procurement for farming, housing blocks, food producers, shared services, and retail stores. In worker cooperatives, the workers as owners represent labor that hires capital, while capital hires labor in capitalist firms. Berti and Pitelis (2022) formulated the following research propositions for the comparative efficiency advantages and disadvantages of capitalist versus cooperative firms: • Under open team production conditions, cooperative firms are comparatively more efficient than capitalist firms in safeguarding and inducing co-specialized, firm-specific investments by nonfinancial team production members. • Under open team production conditions, capitalist firms are (remain) comparatively more efficient than cooperative firms at attracting and retaining managerial talent and replacing underperforming managers. • Under open team production conditions, capitalist firms are comparatively more efficient than cooperative firms at inducing innovative intra- and inter-firm entrepreneurial effort. • Cooperative firms have comparative efficiency advantages at inducing and orchestrating inter-firm cooperation. • Under open team production conditions, hybrid firms can possess comparative efficiency advantages relative to both traditional capitalist and cooperative firms.

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The capitalist and the cooperative company represent pure organizational types. There are many organizational forms in between depending on ownership, structure, strategy, decision-making, governance, as well as value configuration. Companies in between can be labeled hybrid as indicated in the last research proposition above. Companies with the value configuration of a value chain will typically have strong links to suppliers and vendors in their primary activities, and potential links to outsourcing arrangements in their secondary activities. Companies with the value configuration of a value network will typically cooperate with other firms regarding services. Companies with the value configuration of a value shop might be the closest to the pure organizational form of a capitalist firm. The value shop works iteratively within its own boundaries and with its own resources. The value shop has five primary activities: problem definition (What happened? What might happen?), alternatives identification (What can we do? How can we do it? Why should we do it?), choice making (What criteria do we use? How do we put weight on criteria? What alternatives seem optimal?), action implementation (Activate information sources. Carry out knowledge work. Analyze and summarize), and outcome evaluation (Did we solve the case? Is the solution acceptable? How many resources did we spend?). In the first primary activity, the joint effort within the company is to develop a mutual understanding of the situation that remains specific and distinct by internal processes (Stabell & Fjeldstad, 1998).

Social Economic Conflict in Society One of the peculiar aspects of white-collar crime is that the privileged and powerful punish their own: Why does the ruling class punish their own? Social conflict theory suggests that the powerful and wealthy in the upper class of society define what is right and what is wrong (Petrocelli et al., 2003; Siegel, 2011). The rich and mighty people can behave like “robber barons” because they make the laws and because they control law enforcement (Chamlin, 2009; Haines, 2014; Kane, 2003; Sutherland, 1983; Veblen, 1899; Wheelock et al., 2011). The ruling class does not

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consider white-collar offenses as regular crimes, and certainly not similar to street crimes (Hagan, 1980; Lanier & Henry, 2009a, 2009b; Slyke & Bales, 2013). Nevertheless, crime by individuals in the elite tends to be prosecuted if offenses are detected and evidence of wrongdoing is present (Brightman, 2009), as long as they are not too powerful (Pontell et al., 2014) and do not have too excellent defense attorneys. This theory section thus addresses the following research question: Why does the ruling class punish their own? Social conflict theory views financial crime as a function of the conflict that exists in society (Siegel, 2011). The theory suggests that class conflict causes crime in any society and that those in power create laws to protect their rights and interests. For example, embezzlement by employees is a violation of law to protect the interests of the employer. However, it might be argued that an employer must and should protect their own assets. Bank fraud is a crime to protect the powerful banking sector. However, from the perspective of conflict theory, one might argue that a bank should have systems that make bank fraud impossible. If an employee has no opportunity to commit embezzlement, and if a fraudster has no opportunity to commit bank fraud, then these kinds of financial crimes would not occur, and there would be no need to have laws against such offenses. Furthermore, law enforcement agencies protect powerful companies against counterfeit products, although the companies should be able to protect themselves by reducing opportunities for the production of counterfeit products. Social conflict theory holds that laws and law enforcement are used by dominant groups in society to minimize threats to their interests posed by those whom they perceive as dangerous and greedy (Petrocelli et al., 2003). Crime is defined by legal codes and sanctioned by institutions of criminal justice to secure order in society. Crime is defined as acts that are considered bad and that should be punished. The ruling class thus defines crime by identifying what they think is bad and what they think should be punished. The ruling class secures order in the ruled class by means of laws and law enforcement. Conflicts and clashes between interest groups are restrained and stabilized by law enforcement (Schwendinger & Schwendinger, 2014).

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According to social conflict theory, the justice system is biased and designed to protect the wealthy and powerful. The wealthy and powerful can take substantial assets out of their own companies at their own discretion whenever they like, although employed workers in the companies were the ones who created the values. The super rich can exploit their own wealth that they created as owners of corporations as long as they do not hurt other shareholders. Employees have no right to object. It is no crime to take out values from own enterprises and build private mansions for the money. This is no crime by the owners. Even when the owners just inherited the wealth created by earlier generations, they can dispose freely of it for private consumption. Similarly, top executives who are on each other’s corporate boards grant each other salaries that are ten or twenty times higher than regular employee salaries. As Haines (2014: 21) puts it, “financial practices that threaten corporate interests, such as embezzlement, are clearly identified as criminal even as obscenely high salaries remain relatively untouched by regulatory controls”. Furthermore, sharp practices such as insider trading that threaten confidence in equities markets have enjoyed vigorous prosecution, since the powerful see them as opaque transactions that give an unfair advantage to those who are not members of the market institutions. Karl Marx who created the basis for social conflict theory, analyzed capitalism, and suggested the transition to socialism and ultimately to communism. Capitalism is an economic system in which persons privately own trade, industries, firms, shops, and means of production and operate these enterprises for profit. Socialism is an economic system characterized by cooperative enterprises, common ownership, and state ownership. Communism is a socioeconomic system structured upon the common ownership of the means of production and characterized by the absence of social classes. Marxist criminology views the competitive nature of the capitalist system as a major cause of financial crime (Siegel, 2011). It focuses on what creates stability and continuity in society, and it adopts a predefined political philosophy. Marxist criminology focuses on why things change by identifying the disruptive forces in capitalist societies, and describing how power, wealth, prestige, and perceptions of the world divide every society. The economic struggle is the central venue for the

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Marxists. Marx divided society into two unequal classes and demonstrated the inequality in the historical transition from patrician and slave to capitalist and wage worker. It is the rulers versus the ruled. Marx also underlined that all societies have a certain hierarchy wherein the higher class has more privileges than the lower one. In a capitalist society, where economic resources equate to power, it is in the interest of the ascendant class to maintain economic stratification in order to dictate the legal order (Petrocelli et al., 2003). When economic resources equate to power, then conflict and competition between groups will occur for scarce resources such as education, housing, and jobs. Dominant groups can reduce the threat of other groups in the competition for resources through social control and criminal punishment (Wheelock et al., 2011). In Marxist criminology, capitalism is a criminogenic society, i.e., a society that tends to produce criminality. Capitalism is a system of economic production in which power is concentrated in the hands of a few, with the majority existing in a dependent relationship with the powerful (Lanier & Henry, 2009b: 259): This class-based economic order is maintained by a criminal justice apparatus that serves the interests of the wealthy at the expense of the poor. Those who challenge this system of production are destined for social control, especially if they are seen as a serious threat to the system.

Another German theorist was Max Weber, who wrote about classes in society, economic exploitation of people, political repression, and conflict within society. Neither Marx nor Weber wrote extensively about theories of crime or criminal behavior, but their theoretical perspective served as a good basis for conflict theory. Economic inequalities advance to assume disproportionate power in society and lead to social conflict.

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Remaking Capitalism for Social Acceptance Lucas et al. (2022: 958) argued that “a growing chorus off activists, academics, entrepreneurs, investors, and policymakers has expressed interest in remaking capitalism into a more just, sustainable, and inclusive economic system”: Rather than serving shareholders only, companies have been admonished to generate value for all stakeholders, including employees, customers, suppliers, and communities.

Certification might be an avenue for the social license to operate as discussed by Lucas et al. (2022). Certification can be a device for authenticating values amid efforts to remake capitalism. Certification is an attempt to reconfigure organizational fields and reshape their collective values. Certification of social license moves far beyond traditional quality standard certificates such as ISO 9000. It is a matter of longterm vision of value-laden certification where various stakeholders rather than shareholders exclusively determine business direction. Values are here understood as abstract conceptions of desirable ends and goals that address specific circumstances and around which means and actions are oriented. Values can also be understood in the cultural perspective where they are manifested in various artifacts, rituals, and symbols. The research by Lucas et al. (2022) exemplified certification by the B Lab which is a nonprofit network attempting to transform the global economy to benefit all people, communities, and the planet. The B Lab can issue a B Corp certification to corporations that contribute to an inclusive, equitable, and regenerative economy. Certification is based on standards defining social, environmental, and governance best practices for businesses. Sample questions from the B Lab assessment of companies include (www.bcorporation.net): • Governance: What portion of your management is evaluated in writing on their performance with regard to corporate, social, and environmental targets?

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• Workers: What % of the company is owned by full-time workers (excluding founders/executives)? • Community: What % of management is from underrepresented populations? (This includes women, minority / previously excluded populations, people with disabilities, and/or people living in low-income communities.) • Environment: Does your company monitor and record its universal waste production? • Customers: How do you verify that your product improves the impact of your client organizations? Lucas et al. (2022) studied legislation versus certification. They found that weak sustainability legislation in a jurisdiction tends to increase pressures toward value-driven business by adopting and maintaining a more rigorous and voluntary form of governance, for example in the form of third-party certification. Weak sustainability legislation might increase the need for values authentication, which is social verification of a firm’s values-based commitments by way of a more rigorous governance standard. Lucas et al. (2022) reflected on the relationship between the legal license to operate and the social license to operate, where the latter was exemplified by certification. They argued that the traditional view tells us that new legislative rules positively reshape organizational impacts on society and the natural environment. The new legislative rules are then typically a result of social movements. However, since the strength of legislation may differ in terms of restrictiveness and enforcement, some legislation can be ambiguous as to both performance requirements and the related means for compliance. Legislation tends to take into account all imaginable circumstances and therefore remains full of weaknesses despite the social movements that triggered it. Legislative reform is therefore not at all the culmination of successful institutional change where alternative forms of governance like certifications for the social license to operate could become redundant.

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Pontell, H. N., Black, W. K., & 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. Schwendinger, H., & Schwendinger, J. (2014). Defenders of order or guardians of human rights? Social Justice, 40 (1/2), 87–117. Siegel, L. J. (2011). Criminology (11th ed.). Wadsworth Publishing. Slyke, S. R. V., & Bales, W. D. (2013). Gender dynamics in the sentencing of white-collar offenders. Criminal Justice Studies, 26 (2), 168–196. Stabell, C. B., & Fjeldstad, Ø. D. (1998). Configuring value for competitive advantage: On chains, shops, and networks. Strategic Management Journal, 19, 413–437. Sutherland, E. H. (1983). White collar crime—The uncut version. Yale University Press. Veblen, T. (1899). The theory of the leisure class: An economic study of institutions. Macmillan, NY. Wheelock, D., Semukhina, O., & Demidov, N. N. (2011). Perceived group threat and punitive attitudes in Russia and the United States. British Journal of Criminology, 51, 937–959. Zager, L., Malis, S. S., & Novak, A. (2016). The role and responsibility of auditors in prevention and detection of fraudulent financial reporting. Procedia Economics and Finance, 39, 693–700.

7 The Convenience Theory Approach

The theory of convenience is explained in this chapter. In terms of its application and relevance to consideration of the corporate social license. The significance of convenience theory in this instance lies within the avoidance of misconduct and crime to gain and keep the social license—a matter of reducing motives for illegitimate gain, reducing organizational opportunities to commit and conceal wrongdoing, and reducing individual willingness for deviant behavior (Stadler & Gottschalk, 2022). Thus, this chapter addresses the challenge of directing executives to align their work with laws, rules, and ethics in terms of evaluation of executive status convenience, resource access convenience, and corporate deterioration convenience. Moreover, various bottom-up approaches are explored based on the theory of convenience in terms of outside-in normative pressure. It is argued that these bottom-up approaches to executive compliance and conformance focus on organizational measures to make white-collar crime less convenient for potential offenders. Convenience theory suggests that normative pressure will be successful in working for the corporate social license to operate among business organizations when conformance to the pressure seems more convenient than lack of conformance. Traditionally, control in organizations is © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_7

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concerned with top-down approaches, where executives attempt to direct their employees to align their work with organizational objectives. This chapter addresses the challenge of directing executives to align their work with laws, rules, and ethics. Various bottom-up approaches are explored based on the theory of convenience. The bottom-up approaches to executive compliance and conformance focus on organizational measures to make white-collar crime less convenient for potential offenders. Bottomup control refers to the manner in which organizational members can use different types of control mechanisms—such as whistleblowing, transparency, resource access, or culture—to monitor, measure, and evaluate executives’ avoidance of deviant behaviors and influence them toward achieving the organization’s goals in efficient and effective ways. Recently, the control perspective has extended to include customization and transmutation of control mechanisms, where transmutation captures the idea that organizational units implement control regimes that are different from the mandated control mechanism from management (Chown, 2020: 711): Researchers are now beginning to bring these literatures together, marrying the top-down managerial perspective with the lived experiences of employees throughout the organization.

This chapter takes a new approach by turning the challenge of control upside down as it focuses on the control of executives who find whitecollar crime convenient. The bottom-up approach to executive compliance focuses on organizational measures to make white-collar crime less convenient for potential offenders. Compliance refers to obeying the formal rules and regulations in force at a given time and place (Durand et al., 2019). Control is concerned with a negative discrepancy between the desired and current state of affairs. Control mechanisms attempt to reduce discrepancy through adaptive action in the form of behavioral reactions (Direnzo & Greenhaus, 2011). Control mechanisms attempt to influence and manage the process, content, and outcome of work (Kownatzki et al., 2013). Control involves processes of negotiation in which various

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strategies are developed to produce particular outcomes. Control is therefore a dynamic process that regulates behavior through a set of modes, rules, or strategies (Gill, 2019). Corporate white-collar crime control is mainly focused on attempts to prevent, detect, and reduce the negative discrepancy between desired and current state of executive affairs. Control attempts to influence the process of work in normative ways. Control targets executive behavior to ensure that executive individuals perform tasks in a legitimate manner. As argued by Kownatzki et al. (2013), behavior control relies on subjective, organizationally relevant criteria to assess executive activity and measures performance in the context of long-term progress toward the development of a particular way of doing things. Behavior control not only provides checks and balances for executive performance but also provides a common vocabulary that facilitates dialogue among stakeholders and fosters the creation of ambitious behavioral norms. When behavior rather than outcome is the focus, controls may provide a buffer for external short-term pressures. Within an organization, struggles are about conceptions of control (Yue et al., 2013). Control mechanisms have to satisfy a number of requirements to be successful, such as fairness perceived by controlled individuals (Long et al., 2011). Social control is based on attachment, commitment, involvement, and belief, whereas a control mechanism is an informal punishment in the appearance of shaming (Amry & Meliala, 2021). At its core, top-down control refers to the manner in which “an organization’s managers can use different types of control mechanisms – such as financial incentives, performance management, or culture – to monitor, measure, and evaluate workers’ behaviors and influence them toward achieving the organization’s goals in efficient and effective ways” (Chown, 2020: 713). Similarly, at its core, bottom-up control refers to the manner in which organizational members can use different types of control mechanisms—such as whistleblowing, transparency, resource access, or culture—to monitor, measure, and evaluate executives’ avoidance of deviant behaviors and influence them toward achieving the organization’s goals in efficient and effective ways. While the hierarchical structure remains with executives at the top of the organization in charge

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of the business, bottom-up control is a matter of stakeholder involvement in compliance. While top-down control is often a formal and rigid system, bottom-up control can be an informal and flexible system. When noticing wrongdoing at the top of the organization, improvisation might be a key capability for organizational members. Capability is the ability to perform (Paruchuri et al., 2021). Improvisation refers to the spontaneous process by which planning and execution happen at the same time (Mannucci et al., 2021). Rather than following formal reporting lines to people who are not trustworthy, improvisation is a matter of spontaneous action in response to unanticipated occurrences, in which individuals find a way to manage unexpected problems. The theoretical perspective introduced in this chapter to discuss a bottom-up approach to executive deviance is crime convenience (Asting & Gottschalk, 2023; Braaten & Vaughn, 2021; Dearden & Gottschalk, 2021; Stadler & Gottschalk, 2022). Reducing crime convenience is a matter of disturbing financial motives based on possibilities and threats, disturbing organizational opportunities to commit and conceal crime, and disturbing willingness for deviant behavior. First in this chapter, the challenge of controlling chief executive officers is discussed. Next in this chapter, the perspective of crime convenience is introduced, followed by a discussion of bottom-up approaches to executive status, resource access, organizational deterioration, lack of guardianship and control, and criminal market forces as convenience themes in the organizational opportunity structure.

Chief Executive Offenders Research has documented the failure of the traditional top-down approach to executive compliance, in particular control of chief executive officers (Bosse & Phillips, 2016; Galvin et al., 2015; Khanna et al., 2015; Pillay & Kluvers, 2014; Williams, 2008; Zahra et al., 2005; Zhu & Chen, 2015). 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,

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officers of universities, church officials, heads of major philanthropies, etc.), but the degrees of freedom enjoyed by many CEOs make the CEO position nevertheless very special in terms of convenience. For example, a CEO may conveniently cheat and defraud owners (Khanna et al., 2015; Williams, 2008; Zahra et al., 2005) because there is a lack of oversight and guardianship in the agency relationship (Bosse & Phillips, 2016; Pillay & Kluvers, 2014). 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 & 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.

Galvin et al. (2015: 163) found that some CEOs suffer from narcissistic identification with the organization: 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.

The CEO is the only person at that top 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. However, the CEO is alone at his or her

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level. The CEO is supposed to face control by the board, but the board only meets occasionally to discuss business cases. Executives below the CEO are typically appointed by the CEO and typically loyal to the CEO (Bendiktsson, 2010; Bigley & Wiersma, 2002; Chatterjee & Pollock, 2017; Chen & Nadkarni, 2017; Davidson et al., 2019; Gamache & McNamara, 2019; Gangloff et al., 2016; Khanna et al., 2015; König et al., 2020; McClelland et al., 2010; Schnatterly et al., 2018; Shen, 2003; Zhu & Chen, 2015). The board of directors is typically incapable of controlling chief executive activities (Ghannam et al., 2019). Examples of former CEOs as white-collar crime convicts include Thomas Middelhoff at Alcantor in Germany, Boris Benulic at Kraft & Kultur in Sweden, Hisao Tanaka at Toshiba Corporation in Japan, Are Blomhoff at Betanien Foundation in Norway, and Trond Kristoffersen at Finance Credit in Norway—in addition to all the well-known names in the United States. Control of executives is necessary to ensure the legitimate success and survival of organizations. As argued by Gill (2019), there are two important conceptual dimensions that draw together insights from studies of control and resistance in the workplace. The dimension of compatibility considers executives’ subjective experiences of the fit between their personhood and modes of control, where alignment can inspire fulfillment and misalignment can prompt suffering and deviant behavior. The dimension of coherence considers executives’ perception of the consistency between modes, which can be fragmented or unified to reinforce organizationally prescribed compliance and ethics, where “ethics is not equivalent to laws” (Dion, 2019: 836).

Deviance Convenience Propositions White-collar crime is financial crime based on the social and occupational position of the offender committed by a person of respectability and high social influence in the course of the offender’s occupation (Sutherland, 1939, 1983). This offender-based definition emphasizes some combination of the actor’s high social status, power, and respectability as the key features of white-collar crime (Benson et al.,

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2021) as well as the violation of stakeholder trust (Sohoni & Rorie, 2021). The deviant behavior of white-collar offenders can be explained by the theory of convenience that suggests a triangle of financial motive, organizational opportunity, and personal willingness (Asting & Gottschalk, 2023; Braaten & Vaughn, 2021; Dearden & Gottschalk, 2021; Stadler & Gottschalk, 2022). Convenience is savings in time and effort, reduced pain and strain, and other factors that make a certain path or choice attractive. Convenience is the state of being able to proceed with something with little effort or difficulty, avoiding pain and strain (Collier & Kimes, 2012; Mai & Olsen, 2016; Sundström & Radon, 2015). What privileged individuals in the elite think and feel about time and effort varies. 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 is a concept that was theoretically mainly associated with efficiency in time savings. Today, convenience is associated with a number of other characteristics, such as reduced effort and reduced pain. Convenience is linked to terms such as fast, easy, and safe. Convenience says something about attractiveness and accessibility. A convenient individual is not necessarily bad nor lazy. On the contrary, the person can be seen as smart and rational (Sundström & Radon, 2015). 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

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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 toward legal actions increase. The basic elements of 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 & Rowley, 2009). Convenience in the decision-making process is not only concerned with one alternative being more convenient than another alternative. Convenience is also 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 a few alternatives (Sundström & Radon, 2015). A similar process can be explored for white-collar crime where the individual avoids the effort of collecting more information about alternatives that might have led to a non-criminal 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. White-collar criminals probably vary in their perceived convenience of their actions. Low expected convenience can be one of the reasons why not more members of the elite commit white-collar offenses. A combination of motive, opportunity, and willingness determine the extent of white-collar crime convenience as illustrated in the structural model in Fig. 7.1. There are a total of fourteen convenience themes on the right-hand side in the figure. Corporate white-collar crime control

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is concerned with the five organizational opportunity themes of status, access, decay, chaos, and collapse. In the financial motive dimension, profit might be a goal in itself or an enabler to exploit possibilities and to avoid threats. Possibilities and threats exist both for individual members of the organization as well as for the organization as a whole. It is convenient to exploit possibilities and to avoid threats by financial means. In the organizational opportunity dimension, convenience can exist both to commit white-collar crime and to conceal white-collar crime. Offenders have high social status in privileged positions, and they have GREED POSSIBILITIES GOAL MOTIVE STRAIN THREATS BANKRUPTCY

CONVENIENCE THEMES

STATUS COMMIT ACCESS OPPORTUNITY

DECAY CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS

JUSTIFICATION INNOCENCE NEUTRALIZATION

Fig. 7.1 Structural model of convenience theory

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legitimate access to crime resources. Disorganized institutional deterioration causes decay, lack of oversight and guardianship cause chaos, while criminal market structures cause collapse. The personal willingness for deviant behavior focuses on offender choice and perceived innocence. The choice of crime can be caused by deviant identity, rational consideration, or learning from others. Justification and neutralization cause the perceived innocence of crime. Identity, rationality, learning, justification, and neutralization all contribute to making white-collar crime action a convenient behavior for offenders. The current chapter will concentrate on the opportunity dimension of convenience theory to discuss bottom-up approaches to executive deviance convenience.

Executive Status Convenience Corporate executive status is the first convenience theme in Fig. 7.1 for organizational opportunity along the axis of committing white-collar crime. The perspective here is to discuss how a bottom-up approach to executive compliance can disturb and reduce the extent of white-collar crime convenience from executive status. A bottom-up approach might involve the disclosure of executive language, removal of powerful people, detection of misleading attribution, disregard of offender humor, and correction of power inequality. 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 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). Executive status can allow executive language that nobody understands. For example, one might suggest that elite members are considered too big to fail and too powerful to jail (Pontell et al., 2014), and there is power inequality between the elite and others (Patel & Cooper, 2014). Therefore, subordinates tend to accept executive language that they do

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not really understand (Ferraro et al., 2005), and they get distracted from observing deviant behavior by offender humor (Yam et al., 2018). A consequence of strange language and offender humor might be an acceptance of the blame game by misleading attribution to others (Eberly et al., 2011). Executives may reinforce a culture of financial crime by ignoring criminal actions and otherwise facilitate unethical behavior. At the same time, they try to distance and disassociate 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.

Misleading attribution of blame to subordinates by executives is both a matter of detection and reaction (Eberly et al., 2011). Generally, attribution is concerned with how individuals make judgments about responsibility (Piening et al., 2020: 335): Attributions of responsibility involve a series of yes-no judgments in which individuals first determine whether a negative event has been caused by internal or external factors. If the event is attributed to internal causes, the process continues to determine whether the cause was controllable or not, whereas in case of external causality, the organization cannot be held responsible, so the process stops.

When the Siemens corruption scandal emerged in the public, 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’.

Bottom-up detection of misleading attribution can cause selfconscious emotions of guilt and shame among potential and actual

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white-collar offenders, making deviance less convenient (Zhong & Robinson, 2021: 1439): These are painful emotions that individuals experience when they perceive their actions have violated a standard, prompting a negative evaluation of their behavior in the case of guilt or a negative evaluation of their global self in the case of shame. Prior studies have revealed that many forms of wrongdoing can beget guilt and/or shame, including transgressions, cheating, psychological aggression, ostracism, lying and deception, and unethical behavior.

A bottom-up approach to executive deviance is to avoid acceptance of executive language that people do not really understand (Ferraro et al., 2005) and avoid distraction from observing deviant behavior by offender humor (Yam et al., 2018). A consequence of ignorance of strange language and offender humor might be the detection of the blame game by misleading attribution to others (Eberly et al., 2011). Furthermore, leaders with aggressive humor might practice morally ambiguous leadership (Dion, 2020), where their ambiguity can become vulnerable to bottom-up criticism.

Resource Access Convenience Legitimate access to resources is the second convenience theme in Fig. 7.1. A white-collar offender has typically legitimate and convenient access to resources to commit crime (Füss & Hecker, 2008; Huisman & Erp, 2013; Lange, 2008; Pinto et al., 2008; Reyns, 2013). A resource is an enabler applied and used to satisfy human and organizational needs. A resource has utility and limited availability. According to Petrocelli et al. (2003), access to resources equates with access to power. Other organizational members are losers in the competition for resources (Wheelock et al., 2011). The threat of dismissal following corporate scandals limits corporate involvement in executive destiny. Even when the executive is not

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necessarily to blame, the executive is a potential scapegoat that the organization deprives of access to resources (Gottschalk & Benson, 2020). Dismissal occurs instantly, where the former privileged individual has no access anymore to defense attorneys, documents, or colleagues. The corporation has to survive at the expense of an executive (Ghannam et al., 2019). A bottom-up approach to disturbing and reducing access to resources might be a matter of restrictions on access to systems, disclosure of entrepreneurialism, review of specialized access, and limits to strategic resources. While executive access to premises and systems has to be monitored, customization and transmutation are needed to ensure that control mechanisms achieve the intended control outcomes based on executives’ own assessment of their management challenges (Chown, 2020). As mentioned in the introduction, transmutation captures the idea that organizational units including management implement control regimes that are different from the mandated and general control mechanism of the organization. While there is no more need for trust regarding executive work versus others’ work in an organization, control mechanisms implemented in management need to ensure intended control outcomes. Berghoff and Spiekermann (2018: 291) argued 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.

High social status in privileged positions is sometimes associated with entrepreneurship, where an entrepreneurial individual can create opportunities for deviant behavior (Ramoglou & Tsang, 2016). The entrepreneurship perspective emphasizes that entrepreneurs discover and create innovative and entrepreneurial opportunities (Smith, 2009; Tonoyan et al., 2010; Welter et al., 2017). Criminal entrepreneurs actualize illegal opportunities in the shadow economy (McElwee & Smith, 2015). Scheaf and Wood (2021: 2) found that entrepreneurial fraud has

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stimulated a wide array of research related to white-collar 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.

Access to strategic resources needs to be monitored. Strategic resources are characterized by being 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).

Corporate Deterioration Convenience Decay in the form of institutional deterioration is the third convenience theme in Fig. 7.1. 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 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

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prices for their stocks), the organization is still the primary and direct financial beneficiary”. Bottom-up approaches to disturb white-collar crime convenience in times of institutional deterioration include transparency in deterioration, replacement of disorganization, detection of crime signals, transparency in accounting, corporate social responsibility, and sharing of audit reports. Transparency is understood as conditions that make it relatively easy for observers to accurately evaluate phenomena of interest (Haack et al., 2021) since the phenomena occur in a setting with elaborate reporting procedures (Sorour et al., 2021). Internal transparency refers to the possibility for and ability of organizational members to know what is going on in the organization (Maas & Yin, 2021: 4): Organizations can manage the level of transparency through policies to actively distribute information among managers and employees, or alternatively, policies to deliberately suppress information flows. Examples of the former type include intranet webpages, newsletters, meetings, and publicly accessible databases. To illustrate, some organizations actively disseminate information about managers by making the managers’ work calendar visible to everyone in the firm.

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 and nonconformity are disliked, disapproved, or even dismissed (Witt et al., 2022). Training in crime signal detection is a matter of separating real signals from noise signals. The perspective of crime signal detection suggests that there is often too much interference and noise for white-collar crime to

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reach the attention of observers. There are four possibilities in the decision matrix of the observer of potential misconduct and crime (Karim & 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 concerning 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. A bottom-up approach to prevention and detection of white-collar crime is increased transparency in accounting. The discourse and rituals of transparency, account-giving, and verification are central to corporate governance (Mehrpouya & Salles-Djelic, 2019: 13): Transparency has been a normative shell through which financial accounting and audit standards have been pushed around the world. Under the contemporary governance paradigm, financial disclosure regimes are an important dimension of what it means to make organizations, states and individuals transparent and accountable. Champions of transparency, such as the former head of the IMF, Michel Candessus, describe transparency as the ‘golden rule’ of the new international financial system, ‘absolutely central to the task of civilizing globalization’. (…) Transparency implies unhindered access to information for the public. However, the definition of the public, targets and beneficiaries of transparency, along with associated programs and technologies, has been contested and has evolved through time.

As stated above, disorganized institutional deterioration in combination with a lack of corporate social responsibility causes both internal

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and external collapse. The introduction and improvement in corporate social responsibility might represent a bottom-up approach by employees who are concerned with the legitimacy of current business practices. If the reputation and the legitimacy of the business practice deteriorate, then key personnel with an ethical orientation might leave the organization and cause a decline in business performance as a consequence of employee turnover. Legitimacy relates to the perception that the organization is operating in a desirable and appropriate way that is consistent with a broader system of norms, values, and beliefs (Sorour et al., 2021). The bottom-up approach might focus on the signaling effect of corporate social responsibility (CSR), where signals are observable actions that a firm takes to provide information to stakeholders about its unobservable intentions and capabilities (Jardine et al., 2020: 851): Specifically, the activities that serve as CSR signals indicate that a firm is willing and able to act with a long-term vision and to take into account the interests of different stakeholders. For example, by hiring a female board member (an observable action), a firm can signal to job seekers that it is both willing and able (its unobservable intentions and capabilities) to support women in their careers. Similarly, by engaging in CSR activities (an observable action), a firm can signal to governments that it would be a trustworthy partner (an unobservable intention) for a government procurement contract.

Bottom-up approaches to both transparency and CSR can foster a mutually reinforcing effect between the two approaches. Transparency can foster the substantive adoption of CSR, while CSR to be trustworthy requires transparency. The bottom-up call for a condition under which it is relatively easy for external observers to accurately determine the degree to which a practice is implemented forces and enables an organization to explore, embrace, and eventually enact the behavioral prescriptions enshrined in CSR policies and principles (Haack et al., 2021). Since cover-ups allow problematic behavior to continue and often escalate causing additional damage, it is important for insiders to create a punishment regime in the best interest of the organization. An element of such a punishment regime might be to leak stories to the police and to the press. Application of negative consequences for involved

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individual executives might easily make the organization distance and disassociate itself from the offenders and thereby avoid harming organizational reputation. This bottom-up approach represents a reversal of the common top-down approach where leaders reinforce a culture of financial crime by ignoring criminal actions and otherwise facilitating unethical behavior. At the same time, they try to distance and disassociate 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.

As illustrated by the above perspectives, corporate social responsibility requires substance to be trustworthy in terms of transparency and social capital when an executive scandal hits the organization. Furthermore, a bottom-up approach to CSR has to replace window dressing with documented actions against actual misconduct events. Window dressing is the discrepancy between the outside positive presentation of an enterprise and the real negative situation within the enterprise.

Principal–Agent Convenience 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 the 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 & Phillips, 2016; Chrisman et al., 2007; Pillay & Kluvers, 2014; Williams, 2008). The lack of whistleblowing is an important part of the opportunity structure for white-collar 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

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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. In the bottom-up approach of whistleblowing to address suspicions of white-collar crime, it is important for whistleblowers and their allies to avoid conspiracy theories. Sometimes executives, board members, and shareholders might seem to enter into a conspiracy without doing so. The thought of conspiracy can emerge as whistleblowers receive no feedback regarding their notices, and when whistleblowers experience reluctance to talk to them about perceived wrongdoing. Whistleblowers can then easily fall into the trap of considering management and others involved in a conspiracy to conceal wrongdoing and make whistleblowers subject to retaliation, reprisal, and refuting. 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.

Rule Complexity Convenience 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 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

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recommend to business executives in the organizations (Lehman et al., 2020). Cartels are associations of independent corporations in the same industry that strive to reduce competition. When competitors join forces in controlling a market, then excluded competitors as well as customers of the cartel participants become victims (Freiberg, 2020; Goncharov & Peter, 2019; Nielsen, 2003). A bottom-up approach to executive deviance among cartel members would be to blow the whistle on white-collar crime. An alternative is the outside-in approach where outsiders notice and report wrongdoing. For example, customers may notice that the prices are extremely high, or they may notice that some vendors are reluctant to provide supplies since there are other vendors assigned to those customers by the cartel agreement.

Outside-In Normative Pressure Bottom-up approaches can align with outside-in approaches to executive deviance convenience. Outside-in approaches should be recognized as supplements to control white-collar crime. Outside organizations, there are various professionals who can either help white-collar offenders commit and conceal crime, or they can help prevent and detect whitecollar individuals in organizations. Lawyers can report suspicious transactions on client accounts, certified accountants as well as auditors can blow the whistle on suspected value assessments, bank officials can react to attempts to use tax havens for corruption payments, and employees in health care can detect wrongdoing in pharmaceutical firms. Bottom-up is matter of people in the organization who prevent potential white-collar offenders from committing financial crime and who detect white-collar offenders having committed financial crime. A different approach in the same line of reasoning is the outsidein approach where outsiders rather than insiders prevent and detect white-collar wrongdoing in the organization. The outside-in approach involves professional service providers such as law firms, accounting firms, auditing firms, real estate agencies, and banks with their lawyers, accountants, auditors, real estate agents, and bank clerks.

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Often, the convenience of white-collar crime is dependent on the cooperation with external professionals who may turn a blind eye to potential law violations by and together with their clients. Instead of turning a blind eye, they might indeed help their clients with compliance to avoid misconduct and crime. This chapter discusses the outside-in perspective of corporate control of white-collar offenses as it influences crime convenience such as lawyers, auditors, accountants, real estate agents, and health care workers. Many other external helpers can contribute to an outside-in effort of prevention and detection. An example is the art market where money laundering and fraud take place (Oosterman et al., 2022). In an outside-in perspective, knowledgeable lawyers and law firms based on integrity and accountability can prevent potential offenses in client organizations, and they can report instances legitimized by the money laundering act in violation of the duty of confidentiality. However, many lawyers and law firms tend to slide on the slippery slope over to the wrong side of the law when there is a profitable client (Økokrim, 2021). Like certified accountants, certified auditors can give the company legitimacy and can be used to facilitate or commit various forms of financial crime. Økokrim (2021) found that auditors often have chosen to resign from their roles at those companies where they have not received sufficient answers to questions. Some auditors are suspected of approving accounts without special control, or they even more actively assist criminals. These auditors are often associated with companies that operate in the gray zone for what is legal. Some auditors accept reporting and being loyal to deviant management (Hurley et al., 2019). In our outsidein perspective, the ideal contribution from auditors would be to deny acceptance of accounts where their queries are not satisfactorily answered and report their findings to the board of directors as well as externally to public authorities. In our perspective of combatting white-collar crime through outsidein measures, a bank that discovers an attempt at bank fraud should not only consider reporting it to the police but also to the supervisory committee and the compliance officer in the company where someone made the fraudulent attempt. Since police agencies sometimes

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lack both competence and capacity to investigate, a more preventive measure would be to let the offender’s organization know of the attempt. In the outside-in perspective, OECD (2021: 27) argued that tax authorities can encounter professional enablers across a number of different functions, from those business areas involved in promoting voluntary compliance to those undertaking audits or investigations, through those leading in enforcement activity such as civil penalties and criminal prosecution: Lawyers, tax advisors, notaries and accountants are valued gatekeepers to a sound legal and financial system. Their unique sets of skills, together with the professional privileges awarded to them by statutes, put them in a special place within societies. They are experts who are in a position of trust and enjoy certain rights that are not shared by other professions. Jurisdictions should ensure that advisors perform their tasks in accordance with the law, and penalize those few who use their skills, expertise and privileges to design structures with the purpose of breaking the law. This requires that countries have in place a legal framework to support criminal investigators and the justice system in addressing and punishing professional enablers that engage in and facilitate the commission of such crimes.

White-collar crime in the health care sector is growing as individual patients as well as public agencies spend a growing amount of money on health care for themselves and for the population. An example is the pharmaceutical industry (note the pioneering work of Braithwaite, 1984), which hands out prizes and awards to medical doctors at hospitals. The awards, prizes, and funding for research frequently resemble regular bribes. In our perspective of outside-in, pharmaceutical officials not involved in bribing should notify hospitals about corrupt medical doctors. Normative pressure can work the wrong way. Orudzheva et al. (2020) listed a number of normative pressures that can institutionalize corruption. These pressures belong to different convenience propositions. Isomorphic pressures in terms of coercive pressure, mimetic pressure, and normative pressure cause institutional deterioration that is labeled decay in Fig. 7.1.

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In conclusion, based on the theory of convenience, this chapter has suggested a number of themes that might reduce the convenience of crime for white-collar offenders. Traditionally, control in organizations is concerned with top-down approaches, where executives attempt to direct their employees to align their work with organizational objectives. This chapter has addressed the challenge of directing executives to align their work with laws, rules, and ethics. Various bottom-up approaches were explored that need further inquiry in future research.

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8 Considerations on Corporate Social Responsibility

This chapter focuses on some of the wider implications of corporate social responsibility. Traditionally the perspective of corporate social responsibility has dominated executive attention to stakeholders and subsequent corporate interpretation of normative social pressures. Indeed, displaying a clear commitment to corporate social responsibility can be one way of achieving or strengthening the social license to operate, with many companies positioning the social license to operate as part of their corporate social responsibility strategy. However, as the practice has established itself as an anticipated custom, corporate social responsibility has tended toward performance and the exhibition of symbolic rather than substantive actions. In their treatment of this key area, the authors adopt a critical approach in their analysis, evaluating both symbolic and substantive corporate social responsibility and exploring institutional theory perspectives and individual social impact initiatives. The social license to operate is a construct related to several other constructs such as corporate social responsibility (Buhmann, 2016). Displaying a commitment to corporate social responsibility can be one way to achieve the social license to operate. Some companies position

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the social license to operate as part of their corporate social responsibility strategy (Cui et al., 2016). Corporate social responsibility usually refers to the state or fact of having a duty and obligation to deal with issues and take actions that generate societal benefits for all stakeholders who are influenced by or influence corporate business (Carnahan et al., 2017; Davidson et al., 2019; Haack et al., 2021; Jardine et al., 2020; Sajko et al., 2021; Sorour et al., 2021). Corporate social responsibility refers to “actions on the part of firms that appear to advance, or acquiesce in the promotion of some social good beyond that which is required by law” (Bachrach et al., 2022: 533). To take on corporate social responsibility (CSR) means to pay back to society. Payback is the opposite of causing costs to society. CSR is supposed to be a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and national and international norms (Gottschalk & Hamerton, 2022; Zhang, 2021). Ethical leadership “connotates a type of leadership style in which the leader actively promotes, in word and deed, a socially salient ethical agenda” (Quade et al., 2022: 275). CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in the interaction with their stakeholders on a voluntary basis (Ditlev-Simonsen, 2014). The social license to operate depends on the extent of corporate social responsibility. For example, an important stakeholder group is job seekers who evaluate and react to configurational variation in CSR. Job seekers can emphasize association with a values-driven firm that might impact anticipated pride as well as job meaningfulness. Job seekers can feel attracted to potential employers who have a strategic engagement in CSR (Bachrach et al., 2022: 538): Job seekers are likely to interpret strategic engagement as reflective of good management, signaling that their instrumental needs are likely to be met.

Strategic CSR can be a differentiator in the attraction of talent. Bachrach et al. (2022) recommended that companies make CSR reflect consensus, distinctiveness, and consistency based on shared values and

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norms. As emphasized by Girschik et al. (2022), there might be a need to transform corporate social responsibilities to succeed. For example, rather than CSR promoting narrow interests and maintaining managerial control, the scope should be broadened to cultivate the potential of alternative ideas, perspectives, priorities, individuals, and activities. Job seekers are an example of a stakeholder group where the image of potential employers matters. Hoye et al. (2022) studied image attributes to judge organizations’ attractiveness as employers. Innovativeness, gentleness, and competence were among the preferable attributes.

Symbolic and Substantive CSR A distinction is typically made between symbolic and substantive CSR. Symbolic CSR refers to the adoption of low-cost activities intended to signal social responsibility without effectively benefiting anyone in society (Nardi, 2022: 283): Drawing on research on decoupling and symbolic management, the literature generally defines symbolic CSR as any set of activities, practices, or initiatives intended to promote a firm as a socially responsible entity while lacking more tangible socioenvironmental action. Typically, symbolic CSR combines CSR communication efforts and low-cost activities with no relevant social benefits. As an example of a symbolic CSR initiative, a company may publicly announce the creation of an internal CSR committee that, although serving as a signal of social responsibility, never really acts to improve the firm’s performance in social or environmental dimensions. Symbolic CSR is also often associated with greenwashing or social washing, a practice whereby firms claim to be more environmentally or socially responsible than they in fact are.

A symbol is an object, an artifact, or a phrase to portray the company in a better light. Symbols can take the form of words, sounds, gestures, or visual images. Symbolic CSR can be found in many annual reports from companies where a printed statement from the chief executive claims to do much good for society. Signaling is an important symbolic approach

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to influence and convincing of responsibility. Signals refer to observable actions that someone takes to provide information to a selected audience about unobservable intentions and capabilities. Signals might create an impression that someone is willing and able (Jardine et al., 2020). Symbolic responsibility can take the form of promises to engage in practice changes that have not been implemented and may not be implemented (Durand et al., 2019). An example of symbolism in many business organizations is the ceremonial adoption of a code of ethics potentially copied from other business organizations or implemented in the organization by external consultants. The purpose of symbolic communication of CSR is to provide an impression of the company that is not founded in reality. This behavior is similar to window-dressing which refers to the act or the instance of making something appear better than it actually is. Window-dressing is a superficial or misleading presentation of the company designed to create a favorable impression (Desai, 2016; Eberl et al., 2015). A symbol is intended to have meaning beyond its inherent essence. Symbolic actions are representational and require interpretation. Some symbols might seem enlightening, while other symbols fall flat, generating little or no reaction. And some symbols might even fail completely in sending a message, causing negative reactions (Hambrick & Lovelace, 2018). Hambrick and Lovelace (2018: 113) highlighted the special features of symbolic actions: First, symbolic actions are representational, requiring interpretation. By their very nature, symbols stand for other things – typically, concepts or ideals – and, thus, require not only translation but also inferential leaps on the part of an audience. Second, theme-aligned symbols are essentially efforts to persuade. Executives, like other marketers, use symbols to promote their offerings. It is because of these two features that symbols can evoke a wide range of reactions, since organizational members [and other stakeholders] may or may not interpret symbols as intended and may or may not appreciate being targeted for persuasion. Third, symbols are generally inexpensive. Compared to substantive actions, symbolic actions (especially those that are strictly symbolic) typically can be crafted and deployed at little cost, either in terms of time or money. Fourth, and

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relatedly, symbols tend to be highly flexible. Since they are not expensive, symbols can readily be withdrawn or revamped.

In contrast to symbolic CSR, substantive CSR includes resourceintensive initiatives with the potential to generate societal benefits. Substantive CSR requires the application of valuable resources with real potential to benefit society (Nardi, 2022). Substantive responses refer to the implementation of significant changes that involve material costs and are not easily reversible (Durand et al., 2019). The substance is the real thing with unique properties. Within defense work by attorneys, substance refers to legal arguments based on statutes in laws, regulations in procedures, and former decisions in district courts, courts of appeal, and the Supreme Court. Symbolic defense work is concerned with communicating pseudo-legal opinions. Substantive CSR can be characterized as giving, while symbolic CSR can be characterized as taking. Substantive CSR are sincere efforts, while symbolic CSR are scripted efforts (Donia et al., 2019). Schons and Steinmeier (2016) emphasized resource allocation and organizational change as evidence of substantive CSR. While Nardi (2022) examined the economic incentives that may lead companies to engage in symbolic or substantive CSR, Donia et al. (2019) studied the differential impact of substantive and symbolic CSR on employee outcomes. Nardi (2022) formulated the following research propositions: • When competitors engage in symbolic CSR, if a segment of consumers scrutinizes and values the quality of CSR communication, an increase in the CSR price premium leads to a higher willingness to engage in substantive, as opposed to symbolic, CSR. • When competitors engage in symbolic CSR, if a segment of consumers monitors negative socioenvironmental externalities, an increase in the CSR price premium leads to a higher willingness to engage in substantive, as opposed to symbolic, CSR. • When competitors engage in symbolic CSR, if substantive CSR sufficiently reduces negative socioenvironmental externalities, higher monitoring intensity increases the positive impact of the CSR price

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premium on a firm’s willingness to engage in substantive, as opposed to symbolic, CSR. Otherwise, if substantive CSR only generates small reductions in negative socioenvironmental externalities, higher monitoring intensity decreases the positive impact of the CSR price premium on a firm’s willingness to engage in substantive, as opposed to symbolic, CSR. Price premium refers to an increased price on socially responsible products. Such a premium might be an incentive for substantive CSR engagement. Socioenvironmenal externalities refer to effects such as pollution. Monitoring intensity refers to the extent of the activities of competitors that are subject to surveillance. Donia (2019) conducted an empirical study of individuals working in business. They found that the extent of CSR is positively related to work attitudes and subsequent individual performance. When employees think of CSR as important, then substantive CSR is positively related to personal perception of fit with the organization. Gains from substantive CSR then include valued employee outcomes. The distinction between symbolic and substantive CSR is also visible in the research by Bachrach et al. (2022) in terms of distinct CSR attributional configurations. Attributions such as values-driven and strategicdriven can be associated with substance CSR while egoistic-driven and inauthenticity can be associated with symbolic CSR. A configuration of a free, non-forced choice reflects authenticity that signals that the company takes an innovative, broad approach. CSR is then likely to be attributed to core values when it is perceived to be consistent over time.

Institutional Theory Perspective The institutional approach to CSR “grants consideration to the values enshrined and promoted by existing institutions while also proposing strategies to structure and orient institutions toward those values” (Caulfield & Lynn, 2022: 3):

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This institutional focus is in contrast to the now-dominant ‘organizational’ perspective, which primarily speaks to managers on how to effectively and profitably respond to surrounding social conditions or, in the mainstream political CSR literature, how to manage social legitimacy in light of expanding corporate social action.

Caulfield and Lynn (2022) studied how managers and their organizations can be forced to take on responsibility by being constrained or controlled to stay within certain roles. Overstepping of roles can harm managers and their organizations. The study used federalism as an institutional perspective that is concerned with not just managerial or organizational responses to social ills, but also cases in which a social problem can be beyond managerial or organizational action. If managers and their organizations are not constrained or controlled, then institutional deterioration and possible collapse might be the outcome (Rodriguez et al., 2005). 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 “aps in governance abound in today’s globalized world”. There is an erosion of state power and a shift toward private regulation (Aguilera et al., 2018). Since institutional processes are filtered and enacted differently by different organizations, not all organizations experience social trade-offs regarding corporate social responsibility. Internal tensions will vary with norms and values that people have developed in organizations that are socially constructed entities (Battilana et al., 2022: 239): Practices often become institutionalized when they come to be perceived as solutions that address collective problems, and when, over time, people tend to consider them as the natural order of things, even when they have long ceased to satisfactorily solve any problem. Indeed, practices and structures in organizations reflect myths derived from their social environment. Although taken-for-granted norms and practices are enduring, stable, and difficult to change, they nevertheless evolve over time, under the influence of external shocks, legal innovations, cultural processes, and social movements pushing for change. As such, like most myths, the dominant conception of what a goal a company ought to pursue has evolved over time.

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Both compliance and conformance are important institutional theory perspectives. In societies with little or no corruption, compliance, and conformance represent normative institutional pressures (Orudzheva et al., 2020). Compliance refers to meeting legal and other formal obligations, while conformity refers to meeting and potentially exceeding societal and other informal norms and obligations (Durand et al., 2019: 300): (…) we posit that conformity characterizes voluntary actions that constitute a response to social and normative expectations not (yet) codified in standards and law, while compliance relates to formal mandatory regulations that typically enact only minimal conditions of institutional acceptability.

Rather than seeing corporate social responsibility as a symbol or substance of voluntary action, institutional theory suggests that CSR belongs naturally within the governance of business operations. Markets where businesses operate are socially embedded within a field of social networks of suppliers and customers, government regulations, norms, and ethics (Brammer et al., 2012).

Individual Social Impact Work When companies engage in CSR work with substance rather than symbols, employees can engage in the work within their corporate roles. Employees will typically experience intangible benefits from social impact work when they are helping others free of charge. Increased personal fulfillment and meaning are typical intangible benefits. Enhanced skills development can also be the result (Bode et al., 2022: 83): Participation provides employees with so-called stretch roles that grant them responsibilities not normally associated with their positions in the firm, as well as opportunities to interact with diverse and often senior stakeholders. Upon returning to their regular roles in the firm, employees

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might apply new skills and knowledge to the firm’s commercial work, aiding their performance.

Participation in corporate social impact initiatives needs to be acknowledged by the firm. An indication of acknowledgment is the effect on promotion. Bode et al. (2022: 82) found that the literature stresses the positive effects on promotion from social impact work, while their own empirical study indicated lower promotion rates that were “due to lower perceptions of fit, but not commitment”. They phrased the question: Is doing social good also good for one’s career? They conducted a vignette experiment involving managers that is not necessarily very reliable. Especially in cases where board members and executives are coming along with employees doing social impact work, then the benefits will also include recognition and appreciation from the top. Board members and executives as followers in disaster relief operations and development work will strengthen their prestige and potentially heroic status thanks to employees’ social impact work. For example, being an ambassador for a certain good cause while employees do the actual work, might improve employees’ chances of promotion into higher positions that were not necessarily obvious from a skills perspective before the involvement in social impact work.

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9 Challenging the Social License

This chapter presents a close analysis of six illustrative case studies where the social license to operate has been challenged. The cases are from different parts of the world and offer both international and comparative global perspectives within this developing subject area. Community pressure is explored in terms of the rooibos industry in South Africa, following the application of normative social pressure in the Khoi and San communities. When the term social license to operate was coined, it was especially concerned with environmental harm and social risk from physical industrial activities, here three environmental examples are examined, the seam gas industry in Australia, copper mining operations in Peru, and gas exploration and licensing in the Netherlands. The two final case studies cover corruption in the technology industry in Germany, and the perceived social harm attached to European (Danish) garment operations following political upheaval in Southeast Asia.

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Community Pressure on the Rooibos Industry The rooibos industry in South Africa experienced normative social pressure in the Khoi and San communities. The two communities were to benefit from the rooibos industry’s commercial use of rooibos and honeybush. The rooibos industry paid the equivalent of one million US dollars to the communities’ councils, making good on a share-benefit agreement signed in 2019. The rooibos industry, the National Khoi and San Council, and the South African San Council signed the access and benefit-sharing agreement. The South African government recognized the Khoi and San people as the rightful knowledge holders of rooibos. As part of the agreement, the rooibos industry pays a levy of 1.5% of the farm gate price of rooibos to a trust on an annual basis (Thukwana, 2022). Indigenous people in South Africa will be paid to grow the tea plant. Colonial masters made substantial profits in the past from the herbal teas of South African indigenous people. Still, there are three hundred white farmers who operate the rooibos industry with ten rooibos industry processors. From now on, some of the money tea drinkers all over the world spend on rooibos will go to those who originally grew the plant. The Khoi and San people had been brewing rooibos tea for thousands of years. In the eighteenth century, Dutch colonial masters came to the country and began to cultivate it commercially. Khoi and San people were often used as cheap labor or slave labor. Today, around 300 white farmers still own the rooibos plantations (Berg & Breidlid, 2022). After a long process between the two indigenous communities and the rooibos industry, it has been clarified that the rights to the knowledge of the rooibos tea belong to the Khoi people and the San people. The tribes won a payout from the tea industry over rights to rooibos (Berg & Breidlid, 2022). Rooibos tea was long considered a local poor man’s drink, and the tea was first brewed for its health benefits thousands of years ago. Now the demand for the tea is rising (Flanagan, 2022): Demand for rooibos tea, beloved by hipsters and Hollywood stars, has skyrocketed over the past decade, yet the descendants of the huntergatherers who discovered it have only now received their first share of

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the multimillion-pound profits (…) The leaves of the rooibos plant are the key ingredient in a mushrooming international industry that includes pricey lattes, slimming tonics and face cream.

The R 12.2 million sum of money (one million dollar) was the first tranche of the access and benefit-sharing fund, following years of negotiations stretching back to 2014 when the South African government recognized the tribes as the rightful traditional knowledge holders of rooibos. The sum of money was to contribute to poverty reduction, food security, social development, and biodiversity conservation. The money was also destined to include job creation and support to about 160 smallscale farmers of the Wupperthal cooperative in the Western Cape and the Heiveld cooperative in the Northern Cape (Thukwana, 2022). The agreement came more than ten years after the indigenous people first asked the South African authorities for recognition of their contribution to the rooibos industry. The major tea producers then responded by ordering a report stating that there was no written evidence that people had been drinking rooibos tea before the colonization of the country. Lawyers for the two tribes claimed that this did not hold as an argument. The two tribes have traditionally transferred and shared knowledge orally, like many other indigenous people, the lawyers pointed out. The lawyers for the tribes won the battle against the white farmers (Berg & Breidlid, 2022). The tea is exported to more than thirty countries, especially in Europe, North America, and Japan. The equivalent of six billion cups of tea was produced in 2021. Consumption of rooibos has become a global trend both as a tea to drink, but also as an ingredient in cosmetic makeups, slimming products, and medicines (Berg & Breidlid, 2022: 10): Celebrities like Angelina Jolie and the model Miranda Kerr swear by products with rooibos. This may be one of the reasons why rooibos are becoming increasingly popular as a dietary supplement, among other things for alleged “rejuvenating” properties.

The compensation in monetary terms seems symbolic rather than substantive when compared to the profits in the rooibos industry. As

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discussed elsewhere in this book, symbolic actions are very different from substantive actions that would require a much larger sum of money as well as possible changes in ownership structures in the industry. However, the victory after community pressure is interesting as a potential first step towards a fair share of the white farmers’ profits. Forestry, fisheries, and environment minister in South Africa, Barbara Creecy, said the payment was a significant milestone in collaboration efforts between communities, industry, and government (Koka, 2022): “The payment of the monies to the two communities is a significant measure of the success of the work being done by the department with sister departments and all relevant stakeholders to successfully implement this pilot phase of the first industrywide Traditional Knowledge Sharing Agreement”, said Creecy. She said the department had played a key role in the nine-year negotiation process that saw the signing of the agreement that is now one of South Africa’s success stories in the implementation of the National Environmental Management Biodiversity Act (Nemba). “Because rooibos has a long history of commercialization in South Africa, it was deemed important for the rooibos industry to comply with Nemba and the associated regulations. Thus, the 2019 industrywide agreement which entails the one-year pilot through which the San and the Khoi-Khoi people will receive 1.5% of the farmgate price from the 10 rooibos industry processors. This payment is done in the form of an annual levy”, she said.

The rooibos access and benefit-sharing agreement was said to be the first of its kind in the world (Bizzcommunity, 2022): Other agreements involved specific companies and traditional knowledge holders, whereas this agreement encompasses the entire industry, ensuring all volumes of rooibos sold are levied through one process. The rooibos industry – represented by the SA Rooibos Council (Sarc) confirmed that a benefit-sharing levy of 1.5% of the farm gate price of rooibos will be paid out into a trust annually.

The reddish, caffeine-free tea drink named rooibos means red bush in Afrikaans. In 2021, the tea drink became the first African food type to

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register on the European Union’s list of protected designation of origin list. A more famous product on the list is French champagne. The list protects designations of origin and geographical indications. The origins of the rooibos industry lie in the Cederberg Mountain region which is 250 kilometers from Cape Town. The mountain is the only place where the plant grows in the wild (Cotterill, 2021). In 2022, there were 11 members of the Rooibos council: African Extracts Rooibos, Annique Health and Beauty, BOS, Cape Natural Tea Products, Cape Rooibos, Coetzee & Coetzee (Pty) Ltd, Joekels Tea Packers, National Brands Limited, Rooibos Limited, Skimmelberg, and The Red T Company. Several of the Rooibos council board members had typical Dutch names. The chairperson of the Rooibos council was the managing director at Rooibos Limited. On their website, Rooibos Limited claimed corporate social responsibility (www.rooibosltd.co.za): The history and success of Rooibos Limited is deeply intertwined with that of our community and its people. As such, we are powerfully committed to giving back. As a company, we strive to add value to our community and our employees on a practical and tangible basis, through sponsorships in the fields of sports, the arts and academics. We believe that a healthy body nurtures a healthy mind and actively support initiatives in our community within these fields.

The relevant question in the perspective of this book is whether Rooibos Limited was practicing symbolic or substantive corporate social responsibility. Characteristics of substantive responsibility include significant changes that involve material costs and are not easily reversible (Durand et al., 2019; Nardi, 2022). Schons and Steinmeier (2016) emphasized resource allocation and organizational change as evidence of substantive CSR. Organizational change occurred at Rooibos Limited, but it was resisted by the company. The change implied that the rooibos knowledge belonged to the tribes and not to the farmers or the industry (Thukwana, 2022). There was no mention on the CSR website (www.rooibosltd.co.za) of the 1.5% payment that the company has to pay against the company’s own will. Instead, there were a number

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of local sponsorships mentioned that indicate symbolic CSR as “any set of activities, practices, or initiatives intended to promote a firm as a socially responsible entity while lacking more tangible socioenvironmental action” (Nardi, 2022: 283). Therefore, it seems obvious that Rooibos Limited practiced symbolic rather than substantive corporate social responsibility. In terms of the social license to operate, the company had to give in to government and community pressure to accept Khoi and San communities as the rightful owners of the knowledge on which the company made its profits, and thus the company needed to share a small fraction of its revenues with the knowledge owners in the local tribes (Koka, 2022).

Social License for the Seam Gas Industry When the term social license to operate was coined, it was especially concerned with environmental harm from mining companies and other physical business activities (Buhmann, 2016). For example, Haines et al. (2022) studied community pressure against unconventional gas exploration by a large resources company in New South Wales in Australia. Their data collection centered on the activities of one company prominent in coal seam gas operations in New South Wales. They found that the company framed the social license to appeal to different audiences such as investors in annual reports, local residents in local newspapers, and broader constituencies in national broadsheet. The sources of license authority included landowners who had to grant access to the coal seam operations to make business possible for the company (Haines et al., 2022: 191): In tangible terms, what the gas company offered landholders was annual payments for exploration wells sited on their land providing much-needed secure income to farmers particularly during periods of drought or low prices for their produce. The location of sealed roads built to enable company vehicle access could be negotiated so that they also assisted farmers. Negotiation could also proceed by way of comparison – namely that gas was less destructive than coal. Since exploration zones for coal

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often overlapped those for coal seam gas, allowing a gas exploration company access meant that it could be protected against encroachment by coal mines.

The substance of the social license rested on reciprocity and humanity, as well as on proper relationships, where the coal seam gas exploration business was being welcomed into and becoming part of the community (Haines et al., 2022: 191): The emphasis was on a fair process that would lead to a trusted relationship. Yet, the level of commitment required of the company to demonstrate their dedication to obtaining and maintaining social license ranged from a discrete transactional relationship bound in scope and time to an enduring relationship that encompassed a broad range of social and environmental concerns. The requirements to enable an enduring relationship were onerous. Community relations officers within companies could struggle to convince their superiors of the importance and depth of obligation that this level of commitment involved.

The value of the social license was an enhancement of as well as a replacement for law. The laws were not sufficient to regulate business activity. The social license represented and regulated more than what was legally permitted (Haines et al., 2022: 191): Those negotiating access for the company also understood that legality did not negate social expectations around company access to land. Company representatives felt that an a priori assertion of their legal right to access land would be met by anger and defiance. Relying on their legal rights would be seen as arrogant and likely to lead to lengthy court disputes; one argued ‘we never tested it (their legal rights)’. Unlike coal mines where land to be mined is acquired by coal companies, gas companies did not need to acquire land (as subsurface resources in NSW are owned by the state), but they did need access to land in order to access those resources.

Clarification of the sources of authority, the substance of the social license, as well as the value of the social license changed people’s attitude toward gas operations. The attitude changed from cautious openness,

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and some conflict and protest events to a mutual form of respect (Haines et al., 2022). Extracting industries such as seam gas exploration in this case study and copper mining in the next case study as well as the following Groningen gas case study have a high potential for conflicts. Serious social, economic, and environmental impacts often follow extracting industries. The underlying causes of conflicts between companies and their stakeholders are frequently finite resources and incompatibility in interests (Panda & Sangle, 2019).

Social License for the Mining Industry The term social license to operate “emerged in the mid 1990s from within the mining industry as a response to social risk” (Saenz, 2019: 297), and it was especially concerned with environmental harm from mining companies and other physical business activities (Buhmann, 2016). Saenz (2019) studied efforts to build legitimacy and trust between a mining company and a community to earn the social license to operate in Peru. The research by Saenz (2021) also examined the relationship between corporate social responsibility and the social license to operate in Peru, and Saenz (2022) reviewed multiple water strategies to earn the social license to operate in the Peruvian mining industry. Saenz (2019) conducted a comparative case study analysis of two mining operations in Peru. The Tintaya copper mine is located 13,000 feet above sea level in Peru’s Espinar province. Some community members criticized how the land was purchased, and that the activities were both unethical and illegal. Community members complained about the mine’s perceived negative environmental impacts. The company claimed it was complying with the legal license to operate in Peru. The Quellaveco copper mine is located in the region of Moquegua in south-eastern Peru. Community members raised a number of concerns regarding the mining operations: water scarcity, degradation of water quality, increased competition over water resources, environmental harm from toxic waste, and health issues. The mining company responded that they had presented its environmental impact assessment to the energy

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minister and that the assessment had been approved by the Peruvian officials. In order to answer the research question of how a company earns a social license to operate, Saenz (2019) evaluated components of gaining legitimacy and trust. The components were five categories with 19 codes: • Decision-maker factors: Risk tolerance, level of adjustment, relative power. • Pragmatic legitimacy: Stakeholders engagement, norms. • Moral legitimacy: Benevolent concern, security, consensus-based approach, similarities, transparency, mediation, participation. • Cognitive legitimacy: Independent technical support, capability. • Situational factors: Reputation concern, leadership, alignment of interest, predictability and integrity, level of communication. Saenz (2019) did not evaluate the Tintaya and Quellaveco mining operations systematically by application of these components. Instead, the research presented anecdotal evidence of some of the codes. For example, in terms of risk tolerance regarding water supply and quality, a roundtable dialogue caused one of the companies to fundamentally redesign their operations away from the region’s primary river. Another example might be the consensus-based approach regarding water (Saenz, 2019: 302): One of the rules of the norm was that all the agreements should be done by consensus. We were not looking for a voting session; instead, they were looking for a discussion forum in order to understand the differences of opinion and finally to reach consensus. In this sense, the water issue was consensual and the agreement was that the company will not take water out of the river that is used by people and agriculture, and instead the company will build a water reservoir to provide water not only to the company’s operation, but also to the community.

Transparency is yet another code on the list where transparency can cause an increase in stakeholder trust. Therefore, the roundtable dialogue was open to the public, and the press could report from the discussions while some roundtable sessions were broadcast live.

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In his second research publication regarding mining in Peru, Saenz (2021) followed up on the issue of water as it might have become one of the main causes of social conflict in the mining industry. Community members and mining companies can see one another as competitors for water. One mining company decided to switch over from river water to seawater, and the company had to avoid using surface water and groundwater after community pressure. Nevertheless, the water needed for company operations remained one of the main causes of social conflicts in the extractive sector. In his third research publication regarding mining in Peru, Saenz (2022) again addressed the water issue by examining strategies that companies use to gain social license to operate regarding water sources, water roles, and water stewardship. In terms of water stewardship, Mining Company 1 proposed maintaining its role as manager of the water without seeking out community participation. The company argued that it would generate its own water without touching surface water or groundwater. This decision caused the community a low social license to operate. Mining Company 2 changed its water stewardship strategy by proposing a participatory committee to monitor water use. This decision caused a sense of trust in the local community and thus a high social license to operate.

Social License Loss for a Gas Company In the years following an earthquake in 2012, a number of nongovernment organizations (NGOs) saw their membership rapidly increase. The NGOs were at the center of increasingly frequent and vocal protests (Beukel & Geuns, 2019: 12): Many politicians chose their side and took up their cause, arguing that Groningen gas production had to be stopped as quickly as possible. They were unwilling to engage in a constructive debate to explore options for the long-term continuation of Groningen gas production. For many of them Shell (by far the largest company on the Dutch stock market for decades) had always been a very unpopular company. ExxonMobil by

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having a much smaller presence in the Netherlands stayed out of the limelight.

A magnitude 3.4 earthquake hit the northern Dutch province of Groningen, the latest in a series of earthquakes blamed on decades of gas extraction (Osborne, 2019). Citizens with damaged houses expressed their anger on national TV broadcasts. The protests were strengthened by a local feeling that they had been treated badly for a long time (Beukel & Geuns, 2019: 13): The debate grew so fierce that scientists and technical experts became very reluctant to participate. They feared the consequences of speaking out freely. The house-strengthening program being based on an outdated and far too conservative risk analysis was well known among technical experts but remained hidden to members of parliament.

Since the first registered earthquake in the Groningen gas field occurred in 1991, the magnitude of seismic energy had gradually increased, which made a long-term continuation of gas production increasingly difficult. The Shell-run gas company lost its social license after the earthquake in 2012. Six years later, in 2018, the company also lost its legal license to operate. The government in the Netherlands decided to stop natural gas production from the Groningen field (Beukel & Geuns, 2019). In 2022, thousands of Groningen gas opponents were still demanding earthquake damage compensation. An estimated eight to ten thousand citizens took part in a protest procession against gas extraction in the province that had still not been stopped. The local municipality was happy with the protest, which drew attention to the people living in the earthquake area (Roersma, 2022).

Siemens Change After Corruption Scandal When the Siemens corruption scandal emerged in the public, top management attempted to blame lower-level managers (Berghoff, 2018: 423):

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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’.

The 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 & 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’.

A look at Siemens’ corporate culture revealed, according to Berghoff (2018: 429), an astounding willingness to engage in bribery: It was like an unwritten law to go through thick and thin for Siemens. Some employees were proud to have been entrusted with the responsible and at the same time risky task of taking care of organizing bribery. To them it was a token of trustworthiness and importance. Many indeed believed that facilitating bribery was in the best interest of the firm.

As a tribal community and the “Siemens family”, the global company had its own peculiar sets of practices in order to preserve and strengthen its cohesion. Rational self-interest found.a replacement in self-sacrifice to take risks on behalf of the collective. Some privileged individuals even put their behavior on autopilot to serve the organization as they expected to spend the rest of their professional lives at Siemens (Berghoff, 2018). When reviewing the corruption scandal at Siemens in Germany, Eberl et al. (2015) emphasized organizational rule adjustments such as strengthening internal guidelines in order to close potential gaps, extension and specification of compliance rules for all employees and suppliers, general interdiction of consultancy contracts in sales and distribution, and guidelines on presents and invitations.

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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 updates 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.

In the fiscal year 2021, Siemens reported a total of 394 compliance violations. Therefore, and based on the reviewed literature, it seems that Siemens has not regained its social license to operate. Siemens had become one of Germany’s shrinking conglomerates (Miller, 2022).

Bestseller Avoidance of Myanmar Business A company in Denmark was harming its corporate license to operate. The harm was caused by the company’s continued business activities in Myanmar after a military junta took power in the country as explained earlier in this book. The Danish company Bestseller was accused of

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producing cheap garments because of low worker wages in Myanmar which mainly benefitted the ruling generals (Einarsdottir, 2021; Ritzau, 2021). Bestseller had still its legal license to operate since the company’s business in Myanmar was not included in the boycott of the country (Christoffersen & Mikkelsen, 2021; Larsen, 2021; Meixler & Creery, 2022; Reed & Nilsson, 2021). Nevertheless, to strengthen their weakened social license, Bestseller decided to withdraw from Myanmar. The withdrawal caused substantial financial loss to the Danish company (Bestseller, 2021; Reed, 2022). Bestseller operated 2700 branded chain stores across 38 markets worldwide, and their products were sold in 15,000 multi-brand and department stores. Before the withdrawal, Bestseller faced serious criticism (Einarsdottir, 2021) including negative comments from the Danish foreign minister (Ritzau, 2021): The military is in power in Myanmar. According to the UN report, factories that Bestseller uses are effectively owned by the military. Two of the factories used by Danish clothing giant Bestseller in Myanmar in recent years are cooperating with the military in the country, according to a UN report. And this could have consequences, Denmark’s foreign minister Jeppe Kofod told the newspaper. He is greatly exasperated by the cooperation. -I would like to make it quite clear that I think it is highly problematic if Bestseller chooses to have clothes produced in factories controlled by the military dictatorship in Myanmar, according to the UN, he told the newspaper.

Bestseller also faced serious criticism from the clothing and fashion industry that could harm the company’s outlets and their brands (Einarsdottir, 2021): Bestseller receives criticism for alleged military connections in crisisstricken Myanmar. The Danish fashion giant Bestseller is once again in bad weather. This time it is due to their connections in crisis-hit Myanmar. Bestseller, which owns about twenty fashion brands such as Vero Moda, Only and Jack & Jones, produces at three factories in the industrial zone Ngwe Pinlae outside the city of Yangon. A report from

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2019 to the UN Human Rights Council points out that the zone is controlled by the industrial conglomerate Myanmar Economic Holdings Limited (MEHL). Their owners consist of the military and individuals in the military leadership, among them chief of staff Min Aung Hlaing who is mainly responsible for the recent bloody attacks on civilians in the country where over 700 people have been killed, writes Fashion Forum.

However, Bestseller kept its legal license to operate as corporate investigators made an assessment that the company did not violate any sanctions against the Myanmar regime. In fact, the corporate investigators made the recommendation of continuing production and procurement in Myanmar because of employment and thus income for poor local citizens (Larsen, 2021; Reed & Nilsson, 2021). The corporate investigation report by Christoffersen and Mikkelsen (2021) was obviously not sufficient to regain the social license since global and local unions were still skeptical of business activities in Myanmar. The only relevant attempt to regain the license seemed to be by not placing new orders in Myanmar. The argument that poor workers and their families would suffer income loss was contradicted by the argument that the well-being of garment workers in the country was not guaranteed. The report by Christoffersen and Mikkelsen (2021) that asserted legal license and attempted to achieve social license was published on May 10, 2021. Since the attempt failed, Bestseller announced on August 27 in the same year that they had stopped their business in Myanmar already, and that they would place no new orders (Bestseller, 2021): Following the announcement from IndustryALL Global Union and their Myanmar affiliate, the Industrial Workers Federation of Myanmar (IWEM), Bestseller will not place new orders in the country until an impact assessment and dialogue with experts, NGOs, trade unions and other relevant stakeholders with a clear focus on the wellbeing of garment workers in Myanmar has been conducted.

Because of the criticism, Bestseller was “among the companies that froze orders from the south-east Asian country because of human rights concerns and civil unrest” (Reed & Nilsson, 2021). The following year, Bestseller still suspended their business in Myanmar (Reed, 2022):

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In garments, multinational companies such as H&M, Bestseller and Primark brought in supply-chain investors and created jobs, mostly women, during Myanmar’s decade of democratic transition, which ended with a coup. While some have suspended their Myanmar operations, others are quietly still buying.

The EU imposed “sanctions against almost two dozen Myanmar government and military officials as well as a state-backed oil and gas group” (Meixler and Creery, 2022). Bestseller headquartered in Denmark did indeed want to resume business in Myanmar again (Larsen, 2021), but regaining the social license was more important to the firm (Reed & Nilsson, 2021). In recent decades, the military in Myanmar has gained control over many business enterprises in the country. They control large parts of the land where private citizens, hotel owners, and business executives have to pay substantial fees for renting property (Wikan, 2022).

References Berg, A., & Breidlid, C. (2022, July 19, Tuesday). Urfolk i Sør-Afrika skal få betalt for å ha dyrket frem teplante (Indigenous people in South Africa will be paid to have grown the tea plant). Daily Norwegian newspaper Aftenposten, 10p. Berghoff, H. (2018). “Organised irresponsibility?” The Siemens corruption scandal of the 1990s and 2000s. Business History, 60 (3), 423–445. Bestseller (2021, August 27). Not placing new orders in Myanmar. Bestseller. www.bestseller.com Beukel, J., & Geuns, L. (2019). Groningen gas: The loss of a social license to operate. Hague Centre for Strategic Studies. Netherlands, 22pp. Bizzcommunity (2022, July 14). SA rooibos industry pays out R12.2m to Khoi and San communities, Bizcommunity, www.bizcommunity.com Buhmann, K. (2016). Public regulators and CSR: The ‘social license to operate’ in recent United Nations instruments on business and human rights and the juridification of CSR. Journal of Business Ethics, 136 , 699–714. Christoffersen, J., & Mikkelsen, M. S. (2021, May 10). Redegjørelse: Bestseller A/ S’ samfundsansvar i Myanmar (Statement: Bestseller Ltd.’s Social Responsibility

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in Myanmar). Law firm Offersen Christoffersen, Copenhagen, Denmark, 122pp. Cotterill, J. (2021, July 27). South Africa’s indigenous rooibos tea farmers seek a fairer deal. Financial Times. www.ft.com Durand, R., Hawn, O., & Ioannou, I. (2019). Willing and able: A general model of organizational responses to normative pressures. Academy of Management Review, 44 (2), 299–320. Eberl, P., Geiger, D., & Assländer, M. S. (2015). Repairing trust in an organization after integrity violations. The Ambivalence of Organizational Rule Adjustments, Organization Studies, 36 (9), 1205–1235. Einarsdottir, I. E. (2021, April 20). Bestseller får kritikk for påståtte militærforbindelser i kriserammede Myanmar (Bestseller receives criticism for alleged military connections in crisis-stricken Myanmar). Fashion industry magazine Melk & Honning. www.melkoghonning.no Flanagan, J. (2022, July 14). Tribes win payout from South African tea industry over rights to rooibos. The Times. www.thetimes.co.uk Haines, F., Bice, S., Einfeld, C., & Sullivan, H. (2022). Countering corporate power through social control: What does a social licence offer? The British Journal of Criminology, 62, 184–199. Koka, M. (2022, July 14). San, Khoi-Khoi communities get R12m from rooibos tea industry. Sowetan Live. www.sowetanlive.co.za Larsen, M. (2021, April 21). Danish company bestseller urges EU to take action on Myanmar, ScandAsia, Nordic News and Business Promotion in Asia. www.scandasia.com Meixler, E., & Creery, J. (2022, February 22). EU targets Myanmar’s lucrative energy sector in latest sanctions. Financial Times. www.ft.com Miller, J. (2022, February 10). Germany’s shrinking conglomerates enjoy profits surge after streamlining. Financial Times. www.ft.com Murphy, P. R., & Dacin, M. T. (2011). Psychological pathways to fraud: Understanding and preventing fraud in organizations. Journal of Business Ethics, 101, 601–618. Nardi, L. (2022). The corporate social responsibility price premium as an enabler of substantive CSR. Academy of Management Review, 47 (2), 282– 308. Osborne, S. (2019, May 22). Groningen earthquake: Dutch province hit by tremor blamed on decades of gas extraction. Independent. www.independent. co.uk

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Panda, S. S., & Sangle, S. (2019). An exploratory study to investigate the relationship between social license to operate and sustainable development strategies. Sustainable Development, 27 , 1085–1095. Reed, J. (2022, January 25). Stay or go: the dilemma for multinationals in Myanmar, Financial Times. www.ft.com Reed, J., & Nilsson, P. (2021, May 21). H&M and Primark resume Myanmar orders for first time since coup. Financial Times. www.ft.com Ritzau. (2021, April 18). Kofod fortørnet over Bestsellers brug af fabrikker i Myanmar (Kofod upset over Bestseller’s use of factories in Myanmar). Danish broadcasting TV2. www.nyheder.tv2.dk Roersma, R. (2022, January 16). Thousands of Groningen gas opponents demand earthquake damage compensation. NL Times. www.nltimes.nl Saenz, C. (2019). Building legitimacy and trust between a mining company and a community to earn social license to operate: A Peruvian case study. Corporate Social Responsibility and Environmental Management, 26 (2), 296– 306. Saenz, C. (2021). The relationship between corporate social responsibility and the social licence to operate: A case study in Peru. Resource Policy, 74, 1–7, published online https://doi.org/10.1016/j.resourpol.2022.102687 Saenz, C. (2022). Keeping up the flow: Using multiple water strategies to earn social license to operate in the Peruvian mining industry, Resource Policy, 77, 1–8, published online https://doi.org/10.1016/j.resourpol.2022.102687 Schons, L., & Steinmeier, M. (2016). Walk the talk? How symbolic and substantive CSR actions affect firm performance depending on stakeholder proximity. Corporate Social Responsibility and Environmental Management, 23, 358–372. Thukwana, N. (2022, July 12). South Africa’s rooibos industry just paid out R12.2 million to the Khoi and San communities. Business Insider South Africa. www.businessinsider.co.za Wikan, V.S. (2022, August 17, Wednesday). Norge fordømte kuppet i Myanmar. Så brukte de millioner på svartelistet hotel (Norway condemned the coup in Myanmar. Then they spent millions on blacklisted hotels). Daily Norwegian newspaper Aftenposten, 6pp.

10 Social License and the Impact of Corporate Change

This chapter presents an impactful case study in close detail to illustrate the effect of corporate change on perceived normative social values, OBOS Social Housing. OBOS was a construction company that operated under the mission statement of building ordinary homes for ordinary people in Norway for several decades after World War II. The company was organized as a cooperative of over half a million members and residents as well as people looking to obtain tenancy were members of the cooperative. Within this socially established housing model, residents and prospects paid an annual membership fee with the company engaging in a multi-service model encompassing the development and sale of homes and properties, banking and financial services, property management, real estate brokerage, and other forms of service production in the housing and property sector. Following restructuring and clear movement into the luxury housing market during 2020 and 2021, the new Chief Executive expressed a desire to deviate from the established business model of the cooperative company, causing a powerful bottomup reaction in terms of a member revolt that threatened the social license to operate and consequently the viability of the company.

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Obos is Norway’s largest social housing developer. Obos’ vision is to build the society of the future and, in doing so, fulfill housing dreams. Obos is a member organization where residents and prospects pay an annual membership fee. Obos engages in the development and sale of homes and properties, banking and financial services, property management, real estate brokerage, and other forms of service production in the housing and property sector. The organization is a cooperative owned by its 502,527 members. The case study in this chapter was presented to Obos management for contradiction, and the comments from the senior advisor for the member organization at Obos, Pettersen (2022), are included in the following text.

Obos Return to Ordinary People Housing The cooperative construction company Obos in Norway was established in 1929 to provide solutions to housing shortages for low-income families in the capital of Oslo. After World War II, Obos played an important role in building apartment blocks on the east side of Oslo. The rich people live on the west side of the Aker River in Oslo, while the less financially fortunate live on the eastside of the city center. Apartments were affordable for poor families as Obos required minimal deposits and favorable loans (Oesterud, 2016). To be qualified to buy the most attractive Obos apartments, buyers had to document membership for several decades when moving into the 1950ies, 1960ies, and 1970ies. There was a strong profile of ordinary homes for ordinary people in all Obos operations that granted management both a legal and a social license to operate. Obos was Norway’s largest housing developer. Obos engaged in the development and sale of homes and properties as well as property management and real estate brokerage. Obos was a cooperative membership organization with half a million members (Holm, 2021). Two important incidents harmed the social license to operate. The first incident was the Obos’ involvement in building luxury apartments on the west side of the city. The most expensive apartment was priced at the equivalent of ten million US dollars in 2020, which very few Norwegians

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could afford. It was obviously built for the most affluent people in the city. The other incident was Obos’ sale and transfer of a block of flats in 2021 not to its members but to a capitalistic company of landlords that intended to make a profit on rental apartments (Jacobsen, 2020; Lorch-Falch & Tomter, 2021a). A member revolt together with strong negative reactions from other stakeholders caused Obos management to ask corporate investigators whether Obos had violated its legal license to operate. Corporate investigators from KPMG (2021) concluded that there was no violation of national laws or cooperative regulations. However, the negative reactions were concerned with the social license to operate. Members reacted to the deviations but discovered that they had no saying. They wrote newspaper articles about the change away from the basic vision and mission of the cooperative (Holm, 2021; Stang, 2021). Members argued that Obos had lost its soul (Hegtun, 2021). The revolt included demonstrations in front of the Obos headquarters in Oslo with the demand from members that the cooperative is ours (Sørgjeld, 2021). The revolt leader requested that the chief executive be removed from his position (Lorch-Falch et al., 2021). Some protesters suggested that executives suffered from megalomania which refers to a mental disorder characterized by an excessive increase in attention to one’s own person (Lundgaard & Sørgjeld, 2021). Protesters disliked the comradely tone between elite members who supposedly negotiated with each other (Lorch-Falch & Tomter, 2021a). As a reaction to the criticism, the Obos board hired corporate examiners from KPMG (2021) to review the allegations. However, similar to the Bestseller investigation, the corporate examiners only reviewed whether or not the legal license had been violated. The examiners concluded that the recent transactions with rich people did not violate rules and regulations at Obos since they constituted only a minor part of the overall business. Revolt leaders in the Obos membership were not happy with the legal review. Member allegations of social license violations by Obos management in their operations were still concerned with four issues:

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1. The mission and vision of Obos is to secure pleasant and affordable housing for members of the cooperative. They should build ordinary homes for ordinary people. It was a violation of the cooperative purpose to sell two complete residential buildings with many apartments to a landlord whose business purpose is to make money on renting the apartments to tenants. 2. The sales price achieved in the anti-purpose transaction was below market value as estimated by Norwegian kroner per square meter. Obos thus suffered a loss compared to selling each apartment separately to its members. The giveaway price and the following loss seemed caused by close personal relationships between individuals on the seller and the buyer sides, as exemplified below. 3. There was a close relationship and comradely tone between the CEO at Obos and the representative of the buyer causing impartiality in connection with the sale of the apartment blocks. The two privileged persons communicated directly with each other about the transaction with minor involvement of governance bodies at Obos. 4. There was also a close relationship between the executive vice president in charge of housing development at Obos and the relevant family members who invested in the purchase of the apartment blocks. The vice president’s impartiality was not at all trustworthy, and he was too late removed from his involvement in the transaction. One of the community revolt leaders posted on his blog why the social license was lost as the issues above illustrate that Obos is no longer a member-governed cooperative institution. He mentioned a number of incidents in addition to those listed above, such as favoring employees in the Obos organization at the expense of other members, demonstrating arrogant executive behavior, and granting hunting rights to privileged individuals. The revolt leader wrote that the members are the true owners of the cooperative (Larsen, 2021): Obos is owned by the members. The members exercise their corporate governance through the general assembly meeting and the elected general meeting representatives. Put at the forefront are the board and administration who are servants of the owners. More nuanced, we can state that

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the board and administration must ensure that they act in accordance with the owners’ wishes. In this context, several of the above issues are relevant: The reason why they have created attention and engagement is obviously that they are perceived as controversial. It could have been okay if the positions taken were rooted in the members, but they were not.

It became obvious that Obos management intended never again to repeat the criticized transactions. Furthermore, member involvement was enhanced by establishing a new organizational structure that would give members a real chance of influence. A democratization process started in 2022. Furthermore, company representatives learned that an a priori assertion of their legal right to manage properties freely would be met with anger and defiance. Relying on their legal rights was seen as arrogant and likely to lead to another member uproar. When Obos management finally understood the member revolt concerned with ordinary homes for ordinary people while the prices in the capital Oslo were still very high and often a barrier to entry for young and low-income people, Obos expanded a new financial model caused by the member revolt. According to the new model, Obos offered members the option of buying half of the apartment and renting the other half from Obos. Over time, each member has the option of increasing ownership share from fifty percent by down payments to Obos at the discretion of the owning member’s financial situation (Lundgaard, 2022).

Characteristics of Obos Social Housing According to Holm (2021), Obos is both a member organization and a commercial enterprise: The reason lies in the history: The housing construction associations became the mainstay of the social democratic housing policy that really took hold after World War II. The idea was to operate without profit, build rationally, get affordable government loans, and pay a symbolic plot rent. The model worked effectively, and the housing construction associations built more than 200,000 homes during this period. Without Obos

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and the other housing associations, the Norwegian welfare society would have looked very different.

In the 1980s, a housing market existed where the supply of and demand for apartments seemed more in an equilibrium state in Oslo where most people could afford housing on the open market. Then Obos transformed its business into more expensive construction projects with apartments not only with sixty or seventy square meters, but also luxury apartments on the west side of Oslo of more than one hundred square meters. “Here you present reality as if it was OBOS that changed strategy, while in reality it was the external conditions that in the late 70s and 80s were dramatically changed. This is misleading to the reader. It was the state and the municipality that abolished the social housing policy and that no longer would pay for the construction of homes at below market price. You also present it as if OBOS is now mainly building expensive homes in Oslo west, which of course is not correct. OBOS does mainly not that” (Pettersen, 2022). The housing market in Oslo went again out of balance after the year 2000. Obos dwellings in Oslo were 11.5 percent more expensive in the first quarter of 2016 compared to the same period the previous year (Oesterud, 2016). Social housing was in high demand. However, Obos seemed not ready anymore to take on the role of providing affordable housing for low-income families. Housing development was still the main activity carried out by Obos in the 2020s. The cooperative business expanded and combined residential construction in Norway, Sweden, and Denmark. Then a cooperative member revolt started where Obos management was accused of wrongdoing and fraud. The source of license authority among 502,527 individuals was their membership at Obos. They represented a bottom-up approach to compliance by the cooperative member revolt, where the bottomup perspective “highlights local, on-the-ground variations in practice, value or belief and the more-or-less strategic improvisation of rankand-file institutional inhabitants as the locus of higher-order institutional change” (Ghaffari et al., 2022: 1710). While unstructured and poorly coordinated, the involved individuals felt entitled to express their

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concerns both as members and as citizens of the community. They counted on authorizing or denying the company Obos their social license to operate. In addition, various other stakeholders voiced their opinions in an outside-in approach. For example, in 2021, the former mayor of Oslo, Fabian Stang, claimed that Obos was sabotaging its own social mission (Stang, 2021): The housing construction company Obos has had large profits. Bravo! But the profits are kept far away from the owners that are the members. The money is not spent on a careful price reduction on new apartments, which would result in a fall in prices throughout the market. They are used for constantly new activities, further and further away from the basic idea. Many members now see that Obos that they thought was theirs has turned into a profit seeker. Like when Obos offered an apartment at Majorstuen for NOK 95 million. Obos should first build ordinary homes for ordinary people before the upper part of the luxury market gets its share. And then there is the sale of an entire block at Ulven. Right in front of the nose of members waiting neatly in line, ready-tomove-in apartments were sold to a rental investor. The board let the sun be shining on them in a report they ordered, which said the sale did not violate the law or the statutes of the cooperative.

Two days later, Stang suggested in a newspaper interview that Daniel Siraj should resign from the CEO position at Obos. The argument was that Siraj was non-democratic. A vote at the general assembly meeting resulted in 105 delegates voting for the dismissal of Siraj, while 343 delegates voted in favor of him staying in the CEO position (Løtveit, 2021). Holm (2021) phrased the question; is Obos the solution or the problem: There is revolt among Obos’ members. They want democracy and a more social profile. For Obos’ leadership, the time has come to examine own bowels. 502,000 Obos members who have been passive so far are starting to move themselves. More and more of them have noticed that they have neither power nor influence. Through various schemes, the members

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are represented at the annual general meeting, but as a member you get minimal information and, for example, membership votes, so-called primaries, are never held, as you have in many other associations. Obos has a board appointed by the general meeting, and in practice it is the board and the administration that have managed the housing association.

“Whether it is you who translates incorrectly or whether it is what Holm actually writes, I do not know, but it is incorrect. The general meeting does not elect the board of OBOS. The general meeting elects a supervisory board, and it is this supervisory board that elects the board” (Pettersen, 2022). “Holm’s next sentence, which you uncritically reproduce, more than suggests that it should not be the case that it is the board that rules. Both the law and the articles of association clearly state that this is the way it should be. The board is responsible and must make the strategic choices. This is well and thoroughly accounted for by Bråthen and Co” (Pettersen, 2022, referring to the democracy project described below). Holm (2021) did not answer his own question; is Obos the solution or the problem. However, he suggested that Obos should get to its roots. He said how Obos can get back to its roots. First, members have to be empowered while management power has to be reduced. Next, a home culture rather than a business culture should dominate the cooperative. Furthermore, architecture and landscaping should go hand in hand with apartment buildings. Finally, management should concentrate on social housing. Hegtun (2021) phrased a similar question; Has Obos lost its soul: Close down Obos! Kick out the leaders! Cut out the investments in Sweden! Reduce prices! In parts of the membership of the housing group Obos, the mood is now very low. In nine days, there may be a riot at the general meeting.

Fraud examiners from law firm KPMG (2021: 1) were hired to conduct a corporate investigation at Obos, based on the following mandate for the examination:

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On April 9, 2021, the board of directors at Obos commissioned KPMG Law to review relevant facts of the Ulven transaction and make associated legal assessments of these. The main purpose of the investigation is to assist the board in assessing whether irregularities or other matters worthy of criticism have occurred. The background for the assignment is that Obos on the occasion of the development at Ulven in Oslo sold two apartment blocks with a total of 182 apartments to the private rental company Quality Living Residential (QLR) for NOK 936 million. In retrospect, criticism has been leveled at Obos from various quarters. The criticism is mainly related to whether the sale fulfills Obos’ purpose as a housing association and the members’ interests as such. Furthermore, questions have been raised about the relationship between the CEO of Obos and the purchasing representative from QLR, as well as the relationship between the executive director of housing development and his uncle and cousin who invested in QLR.

Obos had sold 182 apartments at Ulven in Oslo to the real estate company Quality Living Residential for NOK 936 million. The homes were to be rented to the growing corporate market in the area (Jacobsen, 2020): -Since the apartments we build at Ulven are primarily housing cooperatives, we welcome a rental concept with high quality in the area. The sale of Ulven West to one entrepreneur means that the project will be completed quickly, thus shortening the construction activity time for those who already live in the area, says CEO Daniel Kjørberg Siraj in Obos.

The project at Ulven will have parks and squares in the immediate vicinity, underground parking, and car-free street gardens. According to the plan, the homes in Ulven West will be ready for occupancy in the spring of 2023. The general contractor is Team Veidekke, which is a construction company (Jacobsen, 2020): -The plan is to rent out the homes to employees associated with the planned knowledge park Construction City and other knowledge organizations in the area, says Baard Schumann.

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Schumann established QLR in 2018. The purpose of the company was to invest in rental projects. The equity in the company was provided by, among others, Oslo Pension Fund, the Baumann family, Wenaas Capital, and Eidissen Consult. Pareto Securities and the Swedish bank SEB assisted in structuring the transaction.

Motive Convenience Themes Daniel Kjørberg Siraj was appointed chief executive officer at Obos in 2017. His predecessor Martin Mæland held the CEO position for thirtyfour years since 1983. Mæland was a social democrat who had a loyal approach to the vision and mission of Obos as a construction cooperative building ordinary homes for ordinary people. Lars Buer, who held the board chair position, was a trade unionist who also committed to the social democracy of Obos as a member organization for ordinary people. After four years in the position of CEO at Obos, Daniel Kjørberg Siraj became the main target of a membership revolt exemplified by Stang’s (2021) article. The revolt included demonstrations in front of Obos headquarters in Oslo with the demand from members stating on posters that Obos is “ours” (Sørgjeld, 2021). “The demonstration consisted of five people. Hardly the foremost sign of wide revolt” (Pettersen, 2022). In 2021, less than twenty percent of Obos’ revenues came from housing. CEO Siraj did not think that was a problem. He was proud of all the large-scale prestige projects that he had launched. One of them was a giant construction effort to build a completely new city district. Some observers labeled it megalomania (Lundgaard & Sørgjeld, 2021). CEO Siraj sold an entire block of apartments to an investor who was to make money on rental arrangements. This was in conflict with the basic idea of Obos to provide ownership of ordinary homes to ordinary people. The idea of home ownership is rooted in the Norwegian tradition where very few rent their homes. However, CEO Siraj preferred to sell the block to investor Baard Schumann with whom he had a comradely tone in the construction business (Lorch-Falch and Tomter, 2021a).

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The main theme for motive convenience was corporate gain to make Obos even more profitable as illustrated in Fig. 10.1. In many organizations, ends justify means (Campbell & Göritz, 2014). If ends in terms of ambitions and goals are difficult to realize and achieve in normal ways, deviant 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 failing to achieve goals and objectives. Welsh and Ordonez (2014) found that high-performance goals cause unethical behavior. Dodge (2009: 15) argued that it is tough rivalry making executives in the organization commit wrongdoing to attain goals: The competitive environment generates pressures on the organization to violate the law in order to attain goals.

Individual executives would like to be successful, and they would like their workplace to be successful. Being associated with a successful business is important to the identity of many executives. They explore and exploit attractive corporate economic possibilities in both legal and illegal ways so that their organizations can emerge just as successful, or as even more successful, than other organizations. Profit orientation becomes stronger in goal-oriented organizations whose aim tends to be an ambitious financial bottom line. It seems that Siraj at the individual level wanted to climb in the hierarchy of needs into fame and admiration. Maslow (1943) developed a hierarchy of human needs where needs start at the bottom with physiological needs, need for security, social needs, and need 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 own life situation. Further up in the pyramid, the person strives for status, recognition, and self-respect. While street crime is often concerned with the lower levels, white-collar crime is often concerned with the upper levels in terms of status and success. Concern for others is sometimes a motive for executive wrongdoing (Agnew, 2014). Helping others can be a self-interested, rational action

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GREED POSSIBILITIES GOAL MOTIVE STRAIN THREATS BANKRUPTCY STATUS

CONVENIENCE

COMMIT ACCESS OPPORTUNITY

DECAY CHAOS

CONCEAL

COLLAPSE IDENTITY CHOICE

RATIONALITY LEARNING

WILLINGNESS

JUSTIFICATION INNOCENCE NEUTRALIZATION

Fig. 10.1

Convenience themes in the case of Obos executives

that claims social concern (Paternoster et al., 2018). In a portrait interview with Siraj, he claimed concern for others in his membership in the Pentecostal congregation (Mauno, 2017). He might have satisfied his desire to help others as a social concern in his business decisions. Accordingly, Agnew (2014) suggested that economic wrongdoing can be committed when individuals think more of others than of themselves. An entrepreneur can commit financial crime to ensure that all employees have a job where they can return. A trusted employee can pay bribes to make sure that the company will have new orders to survive in the future. An executive may commit embezzlement to be able to help his adult children to recover after personal bankruptcy. Agnew (2014) argued that

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social concern consists of four elements, namely that: (1) individuals care about the welfare of others, (2) they want close ties with others, (3) they are likely to follow moral guidelines such as innocent people should not suffer harm, and (4) they tend to seek confirmation through other people’s actions and norms. That a person puts others before oneself will initially lead to less crime. However, economic crime may be committed where the welfare of others and their success is the motive.

Opportunity Convenience Themes Several executives objected to the sale of the Ulven block to the investor Schumann who wanted to rent out apartment. One of them was chief housing officer Arne Baumann who looked at himself as a housing provider for members. But the housing director explained that he was loyal to the chief executive (Lorch-Falch & Tomter, 2021a): Housing director Arne Baumann sees himself as someone who builds homes for the members. According to KPMG, he said that it “tears in the heart of the home builder” to sell a plot in central Oslo to external investors who will rent out. But the director of housing also explained that he was loyal to the CEO. When the agreement was entered into in May last year, Schumann was given a deadline of October 1, 2020, to put money in place. The money did not appear within the deadline. At the time, both housing director Arne Baumann and director of commercial real estate, Nils Bøhler, thought that Obos should turn around to sell to members. Siraj instead gave an extended deadline to get the agreement realized.

Similarly, the board did not react to the Siraj deviance, and board chair Roar Engeland in his account expressed support for the decision, although it led to fewer homes for members (Lorch-Falch & Tomter, 2021a): Like Siraj, he saw that the sale could provide almost one billion in cash. Money Siraj could spin to get plots for more homes than Schumann

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bought. However, in the short term, the sale means that there will be fewer homes for the members.

The status of CEO Siraj can explain his ignorance of negative reactions to his business model rather than membership model of the cooperative Obos. Status as a convenience theme in the organizational dimension is illustrated in Fig. 10.1. 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 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.

Especially 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).

Willingness Convenience Themes CEO Siraj did not think that his business model deviates from the social model (Mauno, 2017):

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-Do you ever get tired of being confronted with the glossy image of the old, social democratic project Obos – those who built apartments for ordinary people in housing need? -No, I’m never tired of that story. I think it’s a proud story Obos has, and I still like to think that we take social responsibility by building as many homes as possible and start projects that we may not make as much money on, but that help young home buyers, says Siraj. By the way, I was called “an anti-social housing shark” in an editorial in your newspaper. I still remember that. Ha-ha-ha! He laughs.

At the annual general meeting on June 22, 2021, CEO Siraj said he was sorry, as a response to a request that he should step down from the position of chief executive (Lorch-Falch et al., 2021): Siraj addressed the congregation and presented the story of Obos. He reminded that the company makes money that goes to housing construction. Last year, the shovel was put in the ground for over 3,000 homes. He apologized if members have perceived the leadership as arrogant. Although the general meeting does not have the power to replace the CEO, Jostein Starrfelt nevertheless proposed that the board of directors and the supervisory board should start work on replacing the CEO. -Everyone gets to express their opinions. That’s how member democracy works. As a top manager, you have to endure different views on the job you do, Siraj told us before the meeting. Starrfelt took the floor and asked everyone to think about whether Siraj should continue to steer the ship. -I do not believe that the CEO has the right expertise, or the deepseated commitment needed to renew Obos to become a strong, memberdriven organization that engages, listens, and delivers, he said.

The willingness to build for the rich and mighty seemed based on a belief that if Obos made money on the rich and mighty, then there would be even better funding for ordinary homes for ordinary people. In the annual report for Obos for 2020, CEO Siraj wrote that he would help young people into their own first homes by sharing space and saving money:

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Obos is more than building homes and making money. One of the biggest innovations is the brand new home purchase model Bostart and Deleie, which open the way into the housing market for many who would otherwise be left out. An absolutely important task for Obos is the major social mission associated with contributing to life between the houses. NOK 567 million have been returned in the five-year period, both to members and living environments in the form of support for sports, culture, local activities, and social meeting places.

CEO Siraj justified his actions as illustrated by the convenience theme along the willingness dimension in Fig. 10.1. In a justification, the actor admits responsibility for the act in question but denies its pejorative and negative content. Justifications are different from denials, excuses, or admissions. In a denial, the actor either disavows that anything untoward happened or denies responsibility for whatever it is that happened. In an excuse, the actor admits the act in question is wrong, but denies having full responsibility for it. In an admission, reference is made to the wrongdoer by name as having engaged in the wrongdoing.

Investigation Report Outcome Fraud examiners from KPMG (2021) found that there was a close relationship between CEO Siraj and QLR executive Schumann. The tone was comradely. They had extensive contact on various business matters. Siraj never considered his impartiality because he thought his relationship with Schumann to be exclusively business-like. The board of directors at Obos had no knowledge of the nature and extent of the relationship, but Siraj informed the board at its meeting in November 2018 that Schumann was chairman of the board of a rental enterprise that was set up by a financial fund. Siraj and Schumann confirmed to the examiners that they have known each other as industry colleagues for about ten years. They have been active in the housing policy debate in politics, participated together on municipal committees, and met each other in various industry contexts. On two occasions they participated together in television programs by the Norwegian public broadcaster NRK. Siraj

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had used the terms “good friend” and “good buddy” about Schumann in social media. They had never visited each other privately, participated together in leisure activities, or been in social contact of a private nature. They had never done business together privately, exchanged gifts, or covered expenses among themselves or their respective family members. Siraj did not consider the relationship with Schumann to be a private friendship. Based on these statements of facts as described by KPMG (2021), fraud examiners found that Siraj’s impartiality was decent. They found no information that Siraj had acted in disfavor of Obos and in favor of Schumann and Quality Living Residential. They found no evidence of either infidelity or corruption. The relationship did not constitute a conflict of interest according to Obos’ ethical guidelines. There were circumstances that could be perceived externally as the relationship also being of a private nature, but according to the ethical guidelines, examiners found that there was no evidence suitable for weakening the confidence in the CEO’s impartiality. The above conclusion relates to the part of the investigation mandate that was concerned with questions about the relationship between the CEO of Obos and the purchasing representative from QLR. The same part of the mandate also questioned the relationship between the executive director of housing development and his uncle and cousin who invested in QLR (KPMG, 2021: 5): Executive vice president housing development heads the housing development division and has been a board member of Ulven Housing in the period from November 22, 2017, to April 29, 2020. He is a board member of Obos New Homes and other Obos companies. During the period as a board member of Ulven Housing, the executive vice president was involved in the case processing of the Ulven transaction. KPMG has evidence that the executive vice president of housing development was contacted by telephone by his wealth advisor on September 4, 2020, in connection with the Ulven transaction. The wealth advisor is also an advisor to the family branch that invested in QLR. In the conversation, the executive vice president became aware that the investment company of the uncle and cousin was considering investing in QLR. (...) The audio log of this telephone conversation has been reviewed by the external

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auditor. KPMG is told that the content does not deal with information that was not otherwise publicly known.

As in the case of the CEO, fraud examiners draw the conclusion that they found no evidence saying that the housing executive acted in favor of any other but the employer Obos. The executive did not act in favor of the investor family, or in favor of himself. There was no basis found for suggesting insider trading, infidelity, or corruption. Another part of the investigation mandate was concerned with Obos on the occasion of the development at Ulven in Oslo that sold two apartment blocks with a total of 182 apartments to the private rental company Quality Living Residential (QLR) for NOK 936 million. In retrospect, criticism was leveled at Obos from various quarters. The criticism was mainly related to whether the sale fulfills Obos’ purpose as a housing association and the members’ interests as such. KPMG (2021) concluded that the transaction with QLR did not violate rules and regulations at Obos.

Violations of the Social License Member allegations of social license violations by Obos management in their operations were concerned with four issues referenced above: the mission and vision, the sales price achieved, the comradely tone, and the close relationships. The second issue concerning pricing was confirmed by investigative journalists (Lorch-Falch & Tomter, 2021b: 10): Our calculations showed that Obos sold the homes 20 percent more expensive to the members than to QLR, even though the apartments in the price list for members were larger on average. We thought this was sensational as well. When KPMG later carried out an investigation, the calculation was based on a similar procedure, but they used points in time that Obos management thought it was relevant. Then KPMG also found that the price to members was higher, but KPMG put in several large discounts and came to the conclusion that the price anyway was reasonable.

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According to Solberg (2022), member-owned organizations over time tend to reduce and in practice partly deprive individual members of their influence: A member-owned organization is an organization where membership should provide influence and co-determination. It is crucial that one now actively enters into processes that upgrade the foundation through statutes of association and elected functions.

As quoted earlier, the former mayor of Oslo claimed that Obos was sabotaging its own social mission. This critique is in line with the first violation issue. Obos should build ordinary homes for ordinary people before the upper part of the luxury market gets its share. There is still a significant shortage of apartments for ordinary people, while Obos in recent years have built apartment blocks where the top floors are reserved for rich people in demand of luxury apartments (Stang, 2021). Similarly, Holm (2021) referred to the revolt where members requested Obos to return to the corporate social profile. In addition, as the quote from Larsen (2021) indicates, they wanted democracy. More and more of the members had noticed that they had neither power nor influence. Hegtun (2021) asked whether Obos had lost its soul. Some protesters suggested that executives suffered from megalomania which refers to a mental disorder characterized by an excessive increase in attention to one’s own person (Lundgaard & Sørgjeld, 2021). Protesters disliked the comradely tone between elite members who supposedly negotiated directly and secretly with each other (Lorch-Falch & Tomter, 2021a). The revolt included demonstrations in front of Obos headquarters with the demand from members stating on posters that Obos belongs to the members (Sørgjeld, 2021). A new scandal emerged as an Obos subsidiary was fined by the Norwegian financial supervisory authority in 2022 (Mjelde, 2022: 31): Obos the company receives harsh criticism and fines after the Financial Supervisory Authority of Norway uncovered several serious violations of the Money Laundering Act.

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This was yet another violation of the main purpose of Obos, which is to build ordinary housing for ordinary people rather than to operate as a financial institution handling other people’s money. “If you had made an effort to read the articles of association of OBOS, you would easily have discovered that banking and real estate are among the purposes of OBOS. Managing savings of members and lending to individual members and housing associations have been a purpose for OBOS since its inception in 1929. From OBOS Articles of Association §2: ‘the association further aims to: (1) Receive savings for management, as well as to conduct lending activities (2) Subscribe for parts or shares in limited liability companies that conduct activities of significance to the housing cooperative (3) Undertake the construction and/or management of buildings on behalf of others than the cooperative owners (4) Operate real estate business’” (Pettersen, 2022). Law professor Beate Sjåfjell at the University of Oslo was surprised to learn that Obos management had entered wrong names into protocol minutes of meetings and even been reluctant to correct the error in the aftermath. According to the law professor, this was a violation of the Norwegian Business Register Act by CEO Siraj (Lorch-Falch & Tomter, 2021b: 15): “Siraj’s explanation meant a clear violation of the Business Registration Act, according to her”. Pettersen, the then director of communications at Obos, attempted to stop investigative journalists Lorch-Falch and Tomter (2021b: 15) at the Norwegian public broadcasting corporation (NRK) from publishing their findings: While we were working on completing the story about the housing director’s connections, it turned out that Obos had contacted the wellknown attorney Cato Schiøtz. The director of communications wrote on Thursday, March 25, 2021: “After a thorough review of the case with him (Schiøtz), the conclusion is that there are no serious, reprehensible matters regarding impartiality and other formalities on the part of OBOS in the case”. We immediately noticed the wording “serious, reprehensible matters”. The language of the attorney could be interpreted as being conditions worthy of criticism, but not serious. Furthermore, it said: “Immediately after Easter, attorney Cato Schiøtz will come back to you with a summary of the case, including the assessment in relation to

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the journalism charter”. We informed that a reply had to come as soon as possible, because we planned to publish before Easter. The deadline for submitting proposals to the general meeting was Maundy Thursday, April 1. We thought that our article was more relevant to members and the general meeting if it could be published as planned, before Easter. Then we got a new answer, directly from Schiøtz on March 26. He wrote to us that the information we wanted to publish together with the comments was “completely taken out of thin air and is an insulting and unfounded speculation”, and further: “It is completely impossible to see that there are any kind of irregularities in this process. In my opinion, no criticism can be leveled at the proceedings in general or at the issue of the handling of any questions of impartiality in particular”. He further questioned “what factual basis NRK has presented its sources in advance of their statements”. Now it was useful for us to have applied a timeline and role maps because then we could quickly check that we had coverage for our information. He also claimed that NRK could be in the process of violating the journalism charter, section 4.1, “Emphasize objectivity and consideration in content and presentation”. After an ethics meeting, the management replied that NRK published the case. We did not have a TV interview, but were able to publish an online news case on March 28, 2021: “The family of the housing director in Obos became a rental investor at Ulven. CEO Daniel Siraj told NRK that the housing director was out of the board when his family joined the investor side at Ulven. According to official documents, he was still on the board of Ulven Housing”. Since then, we have not heard anything more from Schiøtz.

It is interesting to notice the number of attorneys (e.g., Schiøtz) and law professors (e.g., Bråthen) that Obos management has paid to defend the legal license to operate. A new attack on the social license to operate emerged in a major Norwegian newspaper in the summer of 2022. Obos had then 531,033 members with priority rights to buy apartments in the cooperative. Ellen Oftedal Schwenke was one of them. She was portrayed on the front page of the newspaper. She had been searching for her first apartment. With 26 years of Obos seniority in her bag, she had as a first-time buyer good faith that she would be able to acquire an Obos apartment. On the

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homepage of a property agent, she found a very attractive Obos apartment. However, she could not find the apartment on the Obos home page for members to search. The Obos home page for members was designed so that members could register an interest in pre-purchase. She nevertheless arranged a private viewing with the broker. There she was disappointed. At the private viewing, she realized that she was too late. Her pre-purchase right was no longer valid (Øvergård, 2022: 6): -I doubt that many members know about this, as long as they have not discovered it themselves or talked to brokers, she says. Here’s how it’s done: The property agency posts the property on Obos’ website before the advertisement is made public. There is only information about the size, common costs, apartment number and the address. As a result, Obos members have to decide whether to register pre-purchase without having seen a single photo, been in the apartment or read the valuation report. -At first I thought the broker was incredibly cynical. But the more I thought about it, the more I thought there is a flaw in Obos systems. Both the broker and Obos make it very difficult to use membership rights of first buying, says Schwenke. She had to change her tactics and blindly register an interest in pre-purchase of all relevant homes on Obos pages. -It took an awfully long time, especially when we had so many apartments that could be right for us. The process of reporting member interest requires the member to submit documents showing that the member can finance the purchase of each individual home. In Schwenke’s case, she ended up withdrawing from the right of first refusal on many of the homes when they finally appeared on available websites. -If I had seen pictures of the layout right away, I wouldn’t have bothered to spend time registering a pre-purchase.

The Obos management response to this new incident of criticism was to blame brokers who were charged with the sale of homes for Obos (Øvergård, 2022). The Norwegian newspaper followed up in an editorial two days later under the heading “Obos’ right of first refusal fails” (Aftenposten, 2022: 2): There are many Obos members in Norway, approximately half a million. They pay NOK 200 a year for this. One of the most important advantages of membership is the right of first refusal when buying a

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second-hand property through Obos. This is how the cooperation advertises itself: “The right of first refusal is the most important membership benefit Obos members have. It gives you a place at the front of the housing queue, and can make a big difference when you have to find a new place to live”. It works like this: If a member wants to buy, it is the person with the longest seniority who gets the offer first. If the person declines, the next person in line gets the offer. That’s how it continues. If no one wants to make use of the right of first refusal, the person who submitted the winning bid gets to buy the apartment. Membership should thus provide an advantage. But Aftenposten was recently able to tell about Ellen Oftedal Schwenke, who was home hunting. She has 26 years of seniority. She found an interesting Obos apartment at Finn. But when she tried to find it on the Obos website, it could not be retrieved. Had she found it on the Obos’ website, she could have expressed her interest. The right of first refusal had already been clarified through the broker. Schwenke felt cheated. She had to change her tactics and register an interest in pre-purchase of all relevant homes on Obos’ pages. The homes are out for five days on Obos’ website. But there are no pictures of the home, or floor plans. There is only information about the size, joint costs, apartment number, and address. This means that Obos members must decide whether to report a pre-purchase without having seen a single picture, been in the apartment, or read the valuation report. In addition, when pre-purchasing, you must submit documents showing that you can finance the purchase of each home. This seems unnecessarily complicated.

Regaining the Social License It seemed quite obvious that Obos management intended never again to repeat the criticized transaction. Furthermore, member involvement was enhanced by establishing a new organizational structure that would give members a real chance of influence. Furthermore, company representatives learned that an a priori assertion of their legal right to manage properties freely would be met by anger and defiance. Relying on their legal rights was seen as arrogant and likely to lead to another member uproar.

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At the general assembly meeting on June 21, 2021, a democracy project was launched. A record number of delegates—568 cooperative members—participated in the meeting that voted in favor of the project. The mandate for the democracy project was to study legal and economic preconditions and provide professionally based advice for increased democratic influence at Obos. The mandate stated that the purpose was to produce a robust and future-oriented management structure for a large cooperative with a broad membership. It should include an analysis of how the current governing and controlling bodies are composed and function. The project should look at relevant legislation, articles of association, and other relevant cooperatives, consideration of Obos’ main purpose, as well as representation from various groups of members, electoral arrangements, and participation. The project was set up to work independently, freely, and holistically with professional issues. The project was to be carried out by external management, external professional resources, Obos members, and employees. The entire breadth of Obos’ membership was to be involved through a reference group. The democracy committee was to conclude its work within half a year. It was decided that the committee’s recommendations should be published when their report was to be handed over to the Obos board so that stakeholders and others interested would have the same basis for making up their minds in various discussion forums. To offer ordinary homes to ordinary people while the prices in the capital Oslo were still very high and often a barrier to entry, Obos introduced a new financial model caused by the member revolt. According to the new model, Obos offered members the option of buying half of the apartment and rent the other half from Obos. Over time, the member then has the option of increasing ownership share from fifty percent by down payments to Obos at the discretion of the owner’s financial situation (Lundgaard, 2022: 6): Obos has received criticism for not helping people without a lot of money to buy an apartment. Now the housing giant is making an effort. -This was the rescue for me. Without this opportunity, I would not have been able to buy an apartment at all, says Josefin Ingvardsson (40)

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who is standing outside a construction site at Løren with her sons Leo (7) and Noa (12). Behind high fences, the block they are to move into next year is about to rise. There is the apartment of 68 square meters they will eventually own themselves. -I have a good salary. But it would take many years to save up equity. It is quite despairing, says the divorced mother of two. The ‘rescue’ for her is an Obos apartment with a so-called co-ownership model. She has bought half of the apartment. The rest she rents from Obos. Thus, the requirement for capital was greatly reduced. She can spend what she saves on more and more of the half she rents. Obos listened to the rebels.

“OBOS Housing Start was launched in May 2018 and OBOS Part Ownership was launched in February 2020, that is more than a year before the membership uprising. Perhaps an academic publication should rely on somewhat more reliable sources than editorial media?” (Pettersen, 2022). The described two measures of democracy project and co-ownership were introduced in an attempt to regain the social license to operate. While critical members and revolt leaders were waiting for positive outcomes of both initiatives, Obos management was planning for the next general assembly meeting in June 2022. The attempts to regain the social license by Obos management can be studied in terms of factors that are needed to earn the license as suggested by Saenz (2019) and Sale (2021) as illustrated in Table 10.1. The report from the democracy project was published in February 2022 by the review committee (Bråthen et al., 2022). Unfortunately, it was a legal document mainly written by lawyers. An example might illustrate the lack of focus on the social license to operate. The general assembly meeting was dominated by individuals who were both members of Obos as well as employees at Obos. The revolt leader suggested that the fraction of employees having voting rights should be restricted so that the broader membership would gain more influence. However, Bråthen et al. (2022) made it into a legal issue where they claim that such a restriction on voting rights for Obos employees would represent a violation of a law regarding housing cooperatives. The revolt leader will probably be able to find numerous legal experts that will disagree with the Bråthen committee and argue that restrictions on voting rights can

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Table 10.1

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Attempts to regain the social license by Obos executives

Social legitimacy

Violation

Correction

Pragmatic legitimacy

Less business of ordinary housing for ordinary people

Moral legitimacy

Management procedures ignoring membership criticism Deviant actions considered violations of company guidelines

Strengthen business of ordinary housing for ordinary people by co-ownership model Democracy project involving membership representatives by information sharing Investigation report found actions only legally legitimate where correction is still missing Correction

Cognitive legitimacy

Trust vulnerability Risk tolerance

Adjustment level Relative power

Violation Executives taking too much risk in non-core business sectors Executives belonged to the elite distant from the members Members had no power and left the position of being trustors

Return to core business of ordinary housing for ordinary people Democracy project to close gap of management versus members A representative democracy was suggested

be legitimate to avoid double roles of employees in the general assembly as members. “The fact is that ‘the revolt leader’ hired what according to him was Norway’s foremost expert on the subject, Christian Fr. Wyller. Wyller concluded, as I assume you know, similar to the committee. Wyller believes that such a restriction, that is to limit the membership rights of members employed at OBOS, is illegal. Also Andreas Mellbye at law firm Wiersholm and Professor Filip Truyen at the University in Bergen and the Norwegian School of Economics conclude similar to Wyller. Your claim that it will be easy to find experts who conclude differently thus appears to be highly speculative” (Pettersen, 2022). Discussions continued after the democracy project report was published. It was argued that the term “member revolt” was misleading because a very small fraction of members had actually involved themselves in the criticism of the Obos management and in issues related

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to the social license to operate. Furthermore, the statement that Obos “should build ordinary homes for ordinary people” is not founded in any legal documents or other authoritative sources, but only in the historical perception and understanding of the mission and vision of the cooperative business of Obos. Also, the following statement was criticized for lacking foundation in any source of authority: “It was a violation of the cooperative purpose to sell two complete residential buildings with many apartments to a landlord whose business purpose is to make money on renting the apartments to tenants”. “The sales price … was below market value …”, is yet another statement that has been criticized for lacking evidence. Since the alternative of offering apartments to individual members never was assessed in terms of price, it is indeed difficult to substantiate the statement. “Unfortunately, it was a legal document mainly written by lawyers” is a statement that might seem unfair since the general assembly defined the mandate for the democracy project. However, Bråthen and his team could have rejected the mandate in case they found it not suited in light of the member revolt. Generally, fraud examiners are never obliged to accept an assignment where they disagree with the mandate. “The general assembly meeting was dominated by individuals who are both members of Obos as well as employees at Obos”, is yet another statement questioned in the aftermath. Domination might relate to both participation fraction and involvement fraction, where participation is the number of employees in relation to the number of non-employees, while involvement is the talking in the meeting by employees compared to non-employees. Finally, the following statement was disliked by a lawyer on the democracy project: “The revolt leader will probably be able to find numerous legal experts that will disagree with the Bråthen committee and argue that restrictions in voting rights can be legitimate to avoid double roles of employees in the general meeting as members”. A setback in regaining the social license occurred in 2022 when it seemed obvious that the only goal and thus concern was profits. While there was still a strong demand for ordinary housing for ordinary people in the city of Oslo, CEO Siraj proclaimed that thousands of planned

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apartments might be postponed because the prices of materials had risen (Wig, 2022).

References Aftenposten. (2022, August 16, Tuesday). Forkjøpsretten til Obos svikter (Obos’ right of first refusal fails). Daily Norwegian newspaper Aftenposten, 2pp. Agnew, R. (2014). Social concern and crime: Moving beyond the assumption of simple self-interest. Criminology, 52(1), 1–32. Bråthen, T., Fjørtoft, T., Refsholt, H., Minde, S.W., Kronborg, A.K., Allgot, B., & Boye, E. (2022, February 15). Demokratiutvalgets innstilling (The Democracy Committee’s Recommendations). Obos. www.obos.no. Oslo. Campbell, J. L., & Göritz, A. S. (2014). Culture corrupts! A qualitative study of organizational culture in corrupt organizations. Journal of Business Ethics, 120 (3), 291–311. Dodge, M. (2009). Women and white-collar crime. Prentice Hall. Ghaffari, M., Svystunova, L., & Jarvis, L. (2022). Cracking the box or stretching its walls? Exploiting institutional plasticity in Iranian creative advertising. Human Relations, 75 (9), 1707–1740. Hegtun, H. (2021, June 12). Granskere har gått inn i PC-en og telefonen hans. «Helt greit», sier presset Obos-sjef (Investigators have entered the PC and his phone. “Quit all right”, says the Obos boss. Weekly magazine A-magasinet. www.aftenposten.no Holm, E. D. (2021, June 21). Er Obos løsningen eller problemet? (Is Obos the solution or the problem?). Daily Norwegian newspaper Aftenposten. www.aft enposten.no Jacobsen, S. (2020, December 3). Har solgt 182 leiligheter for 936 millioner (Have sold 182 apartments for 936 million). Daily Norwegian business newspaper Finansavisen. www.finansavisen.no Jonnergård, K., Stafsudd, A., & Elg, U. (2010). Performance evaluations as gender barriers in professional organizations: A study of auditing firms. Gender, Work and Organization, 17 (6), 721–747. Kakkar, H., Sivanathan, N., & Globel, M. S. (2020). Fall from grace: The role of dominance and prestige in punishment of high-status actors. Academy of Management Journal, 63(2), 530–553.

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KPMG (2021). Ulven-transaksjonen – Granskingsrapport til styret i Obos (The Ulven transaction – Investigation report to the board at Obos). Law firm KPMG, Oslo, Norway, 34pp. Larsen, B. E. (2021, June 19). Noen betraktninger før Obos’ generalforsamling 2021 (Some considerations before Obos’ general assembly 2021). Benjamin E. Larsen’s blog. www.benjaminlarsen.net Lorch-Falch, S., & Tomter, L. (2021a, June 22). Slaget om Obos (The battle of Obos). Public Norwegian broadcasting corporation NRK . www.nrk.no Lorch-Falch, S., & Tomter, L. (2021b, July). Obos-avsløringene (The Obos Revelations). Report to the Norwegian consortium for investigative journalists that is a member of the Global Investigative Journalism Network. Lorch-Falch, S., Tomter, L., & Lydersen, T. (2020, October 9). Nekter å vise frem regnestykkene som feilet (Refuses to show the calculations that failed). Norwegian public broadcasting NRK . www.nrk.no Lorch-Falch, S., Tomter, L., & Engebretsen, D.K. (2021, June 22). Obosopprøret tapte kamp om maktseter (The Obos uprising lost the battle for seats). Norwegian public broadcasting NRK. www.nrk.no Lundgaard, H. (2022, February 24, Thursday). Hun hadde ikke sjanse til å kjøpe leilighet. Nå skal flere tusen få samme muligheten (She had no chance of bying an apartment. Now several thousand will have the same opportunity). Daily Norwegian newspaper Aftenposten, 6pp. Lundgaard, H., & Sørgjeld, C. (2021, June 21). Milliardene renner inn i Obos-kassen. Men mer enn 80 prosent kommer ikke fra boligbygging (The billions are floating into the Obos cash register. But more than 80 percent do not come from housing construction). Daily Norwegian newspaper Aftenposten. www.aftenposten.no. Løtveit, H. (2021, June 23). Ber Siraj gå: -Selv Putin får ikke så mange stemmer mot seg (Asks Siraj to leave: -Even Putin does not get that many votes against him). Daily Norwegian financial newspaper Finansavisen. www.finans avisen.no Maslow, A. H. (1943). A theory of human motivation. Psychological Review, 50 (4), 370–396. Mauno, H. (2017, June 25). Han er pinsevenn og BMW-eier. Men ikke si at han er fra Flekkefjord (He is a Pentecostal friend and BMW owner. But do not say that he is from Flekkefjord). Daily Norwegian newspaper Dagsavisen. www.dagsavisen.no McClean, E. J., Martin, S. R., Emich, K. J., & Woodruff, T. (2018). The social consequences of voice: An examination of voice type and gender on status

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and subsequent leader emergence. Academy of Management Journal, 61(5), 1869–1891. Mjelde, K.N. (2022, February 25, Friday). Obos-selskap får krass kritikk og bot (Obos company receives harsh criticism and fine). Daily Norwegian business newspaper Dagens Næringsliv, 31pp. Oesterud, T. I. (2016, April 1). The prices for OBOS housing in Oslo increased by 11.5 percent. Norway Today. www.norwaytoday.info Paternoster, R., Jaynes, C. M., & Wilson, T. (2018). Rational choice theory and interest in the “fortune of others.” Journal of Research in Crime and Delinquency, 54 (6), 847–868. Pettersen, Å. (2022, May 2, Monday). Thank you for sending the book manuscript. In the attached file, I allow myself to point out some pure factual errors, as well as statements that in the context lead the reader on wild paths. I take it for granted that these will be changed before the manuscript is published . Email communication, Monday, at 4pm. Saenz, C. (2019). Building legitimacy and trust between a mining company and a community to earn social license to operate: A Peruvian case study. Corporate Social Responsibility and Environmental Management, 26 (2), 296– 306. Sale, H. A. (2021). The corporate purpose of social license. Sothern California Law Review, 94 (4), 785–842. Solberg, F. (2022, March 29). Rydd opp i våre medlemseide organisasjoner som eksempelvis Coop og Tobb (Clean up our member-owned organizations such as Coop and Tobb). Web-based discussion forum Trønderdebatt. www.tro nderdebatt.no Stang, F. (2021, June 21). Obos saboterer sitt eget samfunnsoppdrag (Obos sabotages its own social mission). Daily Norwegian newspaper Aftenposten. www.aftenposten.no. Sørgjeld, C. (2021, June 22). På utsiden demonstrerte Obos-opprøret. På innsiden ble de nedstemt (On the outside, the Obos demonstration revolted. On the inside, they were voted down). Daily Norwegian newspaper Aftenposten. www.aftenposten.no. Welsh, D. T., & Ordonez, L. D. (2014). The dark side of consecutive high performance goals: Linking goal setting, depletion, and unethical behavior. Organizational Behavior and Human Decision Processes, 123, 79–89. Wig, K. (2022, October 14, Friday). Kan legge tusenvis av boliger på is (Can put thousands of homes on hold). Daily Norwegian business newspaper Dagens Næringsliv.

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Øvergård, M. (2022, August 14, Sunday). Når boligen er på Finn, kan det være for sent å bruke forkjøpsretten (When the home is visible at Finn, then it might be too late to exercise the right of pre-purchase). Daily Norwegian newspaper Aftenposten, 6–7pp.

11 Compliance-Conformity-Convenience

This chapter reviews and analyzes the various perspectives on corporate conformity, compliance, and convenience. Corporate compliance and conformity are both matters of issue salience and profitability in terms of benefits exceeding cost. This might seem strange since lack of compliance represents violations of laws and regulations, while lack of conformity represents violations of norms and expectations. It seems more serious to violate laws than norms for corporations. However, if issue salience reflects the seriousness of non-compliance versus non-conformity, then the difference between the two might in some cases in fact be in the opposite direction. Such issues are explicitly linked to perceived social norms, public expectation of how companies “should” or might operate in terms of business practice, an expectation frequently interpreted by corporations as normative pressure. Here, normative pressures are interpreted as socially derived expectations, a multiplicity of different expectations from a plurality of institutional and ethical demands. The chapter develops to cover, inter alia, remaking capitalism for social acceptance, responses to normative pressures, legalistic and formalistic approaches, and organizational deviance and failure in terms of risk and fraud. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_11

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The main perspective in this book is concerned with lack of compliance and conformity as a result of convenience among executives and other trusted and privileged individuals. The extent of convenience orientation varies among members of the elite in society, where convenience orientation refers to 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 toward 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 & Rowley, 2009). In the marketing literature, convenience orientation is for example measured in terms of stage in a person’s life cycle, family size, economic status, social status, and education (Sundström & Radon, 2015). Similar characteristics of convenience orientation might be developed for individuals in the elite regarding white-collar crime (Yasir et al., 2021). Convenience orientation is introduced in this book as an explanation for white-collar crime among chief executives 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. Compliance and conformance to avoid crime convenience is not just a matter of individual and organizational wrongdoing that harms other individuals and organizations. It is also a matter of global sustainability as described by the United Nations (UN). The UN Sustainable

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Development Goal 16 concerns 12 targets for promoting peace, justice, and strong institutions (Windsor, 2022).

Compliance in Corporate Governance Corporate governance refers to mechanisms to protect and enforce stakeholders’ rights by monitoring executives by transparency and holding them accountable. Corporate governance mediates between the various interests of internal and external stakeholders. Fotaki et al. (2020: 19) argued by their research results that compliance complements corporate governance: Compliance, although not sufficient in itself, serves as a complementary mechanism strengthening the effects of ethical values and creating the conditions by which instrumental values can act in favor of corporate governance. The results highlight that governance benefits can emanate from maintaining high ethical standards as well as from synergies between compliance and a focus on organizational values.

Kourula et al. (2019: 1104) defined governance as those private actors that 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.

This wide definition of governance is supported by Davies and Malik (2022), who emphasized regulatory regimes and criminal justice interventions in support of political priorities that give direction to corporate governance. Similarly, Johnson (2022: 23) reviewed a hybrid regulatory approach toward the enforcement of corporate financial crime in the United Kingdom and United States, where an element of the approach is deferred prosecution agreements that “impose a financial penalty and

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behavioral commitments on a corporate entity for a defined period of time in exchange for the deferral of a criminal prosecution”. 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 (Maher et al., 2019; Schneider & Scherer, 2019). 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. 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 “aps in governance abound in today’s globalized world”. There is an erosion of state power and a shift toward private regulation (Aguilera et al., 2018). Critics claim that national governments collectively are taking limited initiatives through the OECD, European Union, United Nations, and other multinational organizations (Eberlein, 2019; Ken & León, 2021; Witt et al., 2021; Zysman-Quirós, 2020). In contrast to the traditional agency perspective of a board’s inability to control management, the multiple agency perspective includes various stakeholders as principals in their use of mechanisms to control management (Fotaki et al., 2020: 20): It considers a host of monitoring and incentives alignment mechanisms, as potential remedies for the multiple agency problems arising within a listed firm due to information asymmetries and conflicts of interest among various principals and agents.

The perspective of principal and agent suggests that when a principal delegates some tasks to an agent, the principal is often unable to

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control what the agent is doing (Bosse & Phillips, 2016). 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 traditional 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 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 (Stiffler, 2022). Agents perform tasks on behalf of principals (Pillay & Kluvers, 2014). The multiple agency perspective suggests that various stakeholders in combination might enable reduction or avoidance in principal–agent problems from opportunistic behavior by corporate executives. Fotaki et al. (2020: 23) argued that “compliance with a given set of structural corporate governance regulatory requirements guarantees that the firm adopts the relevant practices to avoid legal liabilities”: This means that compliance is primarily a quantitative issue, i.e., it denotes the number of corporate governance practices the firm reports that it adopts out of the set of best practices that it adheres to. We argue that compliance can affect the influence of enacted ethical and instrumental values on corporate governance for the following reasons. On one side, compliance with codes of best practices can also provide a compass to principals and agents, educating and guiding them on governance best practice. It defines roles and increases actors’ participation in the governance-related issues, activating a process of learning and fostering a culture of corporate governance (…) On the other hand, compliance safeguards the firm against legal liabilities resulting also in some levels of accountability over the long term. In this context, principals, being usually assigned the monitoring role, have the confidence that agents at least adhere to rules and regulations regarding corporate governance.

Allocation of control rights to strategic resources might vary with governance structures (Rashid et al., 2022). In addition, residual rights

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of control occur because of incomplete organizing of exchanges. Alvarez and Parker (2009) argued that incomplete contract theory suggests that the relevant party to an exchange should receive these residual rights in order to maximize its overall value for the organization. That is the party that expects to create the most value from the exchange. Mehrpouya and Salles-Djelic (2019: 13) argued that the discourse and rituals of transparency, account-giving, and verification are central to corporate governance: Transparency has been a normative shell through which financial accounting and audit standards have been pushed around the world. Under the contemporary governance paradigm, financial disclosure regimes are an important dimension of what it means to make organizations, states and individuals transparent and accountable. Champions of transparency, such as the former head of the IMF, Michel Candessus, describe transparency as the “golden rule” of the new international financial system, “absolutely central to the task of civilizing globalization”. (…) Transparency implies unhindered access to information for the public. However, the definition of the public, targets and beneficiaries of transparency, along with associated programs and technologies, has been contested and has evolved through time.

Fotaki et al. (2020) studied 234 companies listed on the Athens Stock Exchange in Greece. The companies had issued their balance sheets, and therefore also their corporate governance statements. The study findings suggest that interactions with compliance by corporate governance enhance the positive effects of ethical values, whereas compliance can also alter the role of instrumental values in favor of corporate governance. The study results suggested that compliance over a period of several years might increase the engagement of principals and agents with and learning of corporate governance issues. Regarding environmental management and regulation compliance, Ballesteros et al. (2021) argued that introducing the social dimensions of environmental problems into governance has a positive impact. They studied shellfish poaching as an act of non-compliance with the laws that regulate fisheries governance outside Galicia in Spain.

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Remaking Capitalism for Social Acceptance Lucas et al. (2022: 958) argued that “a growing chorus off activists, academics, entrepreneurs, investors, and policymakers has expressed interest in remaking capitalism into a more just, sustainable, and inclusive economic system”: Rather than serving shareholders only, companies have been admonished to generate value for all stakeholders, including employees, customers, suppliers, and communities.

Certification might be an avenue for the social license to operate as discussed by Lucas et al. (2022). Certification can be a device for authenticating values amid efforts to remake capitalism. Certification is an attempt to reconfigure organizational fields and reshape their collective values. Certification of social license moves far beyond traditional quality standard certificates such as ISO 9000. It is a matter of longterm vision of value-laden certification where various stakeholders rather than shareholders exclusively determine business direction. Values are here understood as abstract conceptions of desirable ends and goals that address specific circumstances and around which means and actions are oriented. Values can also be understood in the cultural perspective where they are manifested in various artifacts, rituals, and symbols. Public and professional perception of such artifacts can change over time while the underlying symbolic themes and values remain persuasive (Hamerton, 2020). The research by Lucas et al. (2022) exemplified certification by the B Lab that is a nonprofit network attempting to transform the global economy to benefit all people, communities, and the planet. The B Lab can issue a B Corp certification to corporations that contribute to an inclusive, equitable, and regenerative economy. Certification is based on standards defining social, environmental, and governance best practices for businesses. Sample questions from the B Lab assessment of companies include (www.bcorporation.net):

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• Governance: What portion of your management is evaluated in writing on their performance with regard to corporate, social, and environmental targets? • Workers: What % of the company is owned by full-time workers (excluding founders/executives)? • Community: What % of management is from underrepresented populations? (This includes women, minority/previously excluded populations, people with disabilities, and/or people living in low-income communities.) • Environment: Does your company monitor and record its universal waste production? • Customers: How do you verify that your product improves the impact of your client organizations? Lucas et al. (2022) studied legislation versus certification. They found that weak sustainability legislation in a jurisdiction tends to increase pressures toward value-driven business by adopting and maintaining a more rigorous and voluntary form of governance, for example in the form of third-party certification. Weak sustainability legislation might increase the need for values authentication that is social verification of a firm’s values-based commitments by way of a more rigorous governance standard. Lucas et al. (2022) reflected on the relationship between the legal license to operate and the social license to operate, where the latter was exemplified by certification. They argued that the traditional view tells us that new legislative rules positively reshape organizational impacts on society and the natural environment. The new legislative rules are then typically a result of social movements. However, since the strength of legislation may differ in terms of restrictiveness and enforcement, some legislation can be ambiguous as to both performance requirements and the related means for compliance. Legislation tends to take into account all imaginable circumstances and therefore remain full of weaknesses despite the social movements that triggered it. Legislative reform is therefore not at all the culmination of successful institutional change where alternative forms of governance like certifications for the social license to operate could become redundant.

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Responses to Normative Pressures Normative pressures refer to socially derived expectations. Often, normative pressures are a multiplicity of different expectations from a plurality of institutional demands (Durand et al., 2019: 301): Normative pressures are the evaluative and obligatory dimensions of an institutional order that weigh on an organization to gain, maintain, and defend its legitimacy.

Durand et al. (2019) made a distinction between willingness and ability of organizations to respond to normative pressures. The willingness derives from issue salience that refers to the extent to which a stakeholder issue resonates with and is prioritized by management. Issue salience is a perceptual outcome of a cognition process among decisionmakers. The ability derives from available resources and capabilities that lead to an assessment of taking or not taking action on the issue from a cost–benefit point of view. Therefore, even when an issue is highly salient, the enterprise that is subject to pressure may not respond. Based on the willingness and ability of organizations to respond to normative pressures, compliance and conformity can be either symbolic or substantive (Durand et al., 2019: 300): Symbolic responses, on the one hand, describe managers’ promises to engage in practice changes they have not yet implemented or may not implement, as well as nominal actions to produce impressions of more material change. Substantive responses, on the other hand, refer to managers’ implementation of significant changes that involve material costs and are not easily reversible, such as revamping deep-seated practices and inefficient distribution processes, or buying and selling divisions. While such distinction in responses is well observed in practice and well established in the literature, bridging symbolic and substantive responses with conformity and compliance is a distinctive contribution of the model we propose.

An example of symbolism in many business organizations is the ceremonial adoption of a code of ethics potentially copied from other

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business organizations or implemented in the organizations by external consultants. An example of substance is managerial training after organizational change caused by normative pressures. In their model of organizational responses to normative pressures, Durand et al. (2019) proposed that a corporation may choose to respond to some issues but not to other issues based on varying assessment of issue salience as well as of resource mobilization. Some issues might be met with complete inaction; some might be met with symbolic action, while other issues might be met with substantive action. In the model, assessment of an issue as salient is a necessary but not sufficient condition for initiating a response. The model assesses possible organizational responses along two main dimensions. The first dimension ranges from inaction via symbolic to substantive responses, while the second dimension ranges from non-compliance via compliance to conformity. Four main categories of responses then emerge: (1) symbolic compliance, (2) substantive compliance, (3) symbolic conformity, and (4) substantive conformity. The model assumes that substantive actions are more costly and less reversible than symbolic actions. Substantive actions require a greater extent of resource mobilization that can close for other resorts in response to normative pressures. The main premise of Durand et al.’s (2019) model is that boards with management decide the relevant response to any issue of normative pressure after considering issue salience and cost–benefit ratio, where the latter should be less than one for taking action and more than one for not taking action. This premise leads some businesses to respond symbolically, while others respond substantively, since various businesses even in the same industry might have different salience perceptions and different cost–benefit calculations. For example, the normative pressure not only for financial performance but also for socioenvironmental performance might cause different salience perceptions and different advantages and disadvantages if addressed by various enterprises. The perspective of Durand et al. (2019) can be extended into a dynamic view of responses to normative pressures by comparison with companies hit by scandals. Gottschalk and Benson (2020) identified various paths of evolution of corporate accounts of scandals from exposure to investigation. Their analysis showed that denial of wrongdoing in

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several cases is replaced by admission of wrongdoing and scapegoating, while obfuscation of wrongdoing is replaced by denial or acceptance of responsibility and scapegoating. Similarly, responses to normative pressures might initially take the form of inaction followed by symbolism. If the normative pressure continues and the issue is perceived as salient, while the cost–benefit ratio is considered less than one, then the next decision might be to implement a substantive action. Issue salience is perceptual as the same issue may not only be differentially evaluated as salient across decision-makers and organizations but also be differentially evaluated as salient by the same decision-maker and organization over time. The purpose of Durand et al. and’s (2019: 314) article was to present a “theoretical model describing the organizational decision-making process through which organizations choose whether and how to respond to normative pressures”: By arguing that decision makers independently perceive the salience of an issue and concurrently evaluate the costs and benefits of mobilizing resources to address it, we highlight the sources of response heterogeneity across firms and across issues. These two factors account for both the willingness and ability of organizations to respond to normative pressures. In addition, they help to predict the different responses (inaction, symbolic and substantive conformity and compliance) that advance the neoinstitutional literature by streamlining and enriching the more traditional list of strategic responses to institutional pressures.

In the research by Durand et al., (2019), corporate compliance and conformity are both a matter of issue salience and profitability in terms of benefits exceeding cost. This might seem strange since lack of compliance represents violations of laws and regulations, while lack of conformity represents violations of norms and expectations. It seems more serious to violate laws than norms for corporations. However, if issue salience reflects the seriousness of non-compliance versus non-conformity, then the difference between the two is implicitly covered in the suggested model.

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Research Perspectives on Compliance The word compliance can be defined as the act of adhering to or conforming to a law, rule, guideline, code, demand, or request. In a business environment, conforming is referred to as corporate compliance. Corporate compliance involves keeping a watchful eye on an everchanging legal, regulatory, and moral climate, and making the changes necessary for the business to continue operating in good standing within its industry, community, and customer base to the satisfaction of all stakeholders. Compliance can be defined as “the internal programs that organizations adopt in order to educate employees, improve ethical norms, and detect and prevent violations of law” (Baer, 2009: 949). Corporate compliance is a matter of organizational ability to carry out business activities without violating formal laws, the spirit of the laws, regulations, and rules, ethics within and outside the organization, corporate culture in terms of norms and values, and other forms of guiding principles for the business. Corporate compliance is the ability to lead large groups of people toward achieving certain standards of conduct when performing their activities. Compliance refers to obeying the formal rules and regulations as well as the informal norms and attitudes in force in a given situation (Desai, 2016; Durand et al., 2019). Corporate compliance extends beyond mere legal and regulatory conformity into the realm of promoting organizational ethics and corporate integrity (Dion, 2008, 2009, 2019, 2020). Corporate compliance programs require monitoring, auditing, corrective actions, and system modifications or redesign to prevent future problem behavior (Andreisova, 2016; Majluf & Navarrete, 2011; Peterson, 2013; Remisova et al., 2019). A company’s intolerance for wrongdoing is evidenced by corporate action taken consistent with its corporate compliance effort. Corporate compliance functions need internal and external intelligence to collect information on a continuous basis to prevent and detect deviant behaviors. If a corporate compliance function never prevents or detects actual incidents of wrongdoing, then it is likely that incidents escape under the radar (Desai, 2016; Williams et al., 2019), rather than it is a situation characterized by the absence of wrongdoing.

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A distinction can be made between external and internal compliance (Kawasaki, 2020). External compliance is concerned with the laws, rules, and other regulations from a government that spell out how an organization should conduct itself. External compliance is also concerned with the local norms and values in the organizational environment. Internal compliance is concerned with internal policies and procedures that are implemented in the organizational structure as well as the organizational culture, where structure refers to the division of labor to complete tasks, while culture refers to the norms and values among organizational members when completing tasks. It is a matter of external and internal restraints from social control that influences organizational members toward conformance (Abadinsky, 2007). When reviewing the corruption scandal at Siemens in Germany, Eberl et al. (2015) emphasized organizational rule adjustments such as strengthening of internal guidelines in order to close potential gaps, extension and specification of compliance rules for all employees and suppliers, general interdiction of consultancy contracts in sales and distribution, and guidelines on presents and invitations. Ahrne and Brunsson (2011) described characteristics of an organization as membership, hierarchy, monitor, and sanctions. Organizations decide about membership and thus who will be allowed to join the organization as employees. Membership brings a certain identity with it, where the identity differs from that of non-members. Organizations include a hierarchy where there is a duty to oblige others to comply with decisions. Hierarchy entails a form of organized power. Organizations can issue commands, and they can decide upon rules that its members are expected to follow in their actions. An organization has the right to monitor compliance with its commands and rules (Kawasaki, 2020; Rooij & Fine, 2020). Organizations have the right to decide about sanctions, both positive and negative. They can decide to change a member’s status by using promotions, grading systems, awards, diplomas, and medals. In this hierarchical perspective, compliance at the top is far more difficult to monitor than compliance further down in the organization. Compliance is linked to corporate social responsibility. To take on corporate social responsibility (CSR) means to pay back to society. Payback is the opposite of causing costs to society. CSR is supposed

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to be a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and national and international norms (Zhang, 2021). CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in the interaction with their stakeholders on a voluntary basis (Ditlev-Simonsen, 2014). While research perspectives on compliance are still very limited, CSR is receiving increased attention, sometimes linked to the concept of governance. Corporate social responsibility, governance, and compliance with laws and regulations are three approaches often suggested to combat fraud and corruption in organizations. CSR is defined as discretionary corporate initiatives and activities intended to further social welfare (Carnahan et al., 2017). Today, companies are expected to take on responsibilities beyond regulatory compliance and posting profits (Ditlev-Simonsen, 2014: 117): How companies engage the environment, human rights, ethics, corruption, employee rights, donations, volunteer work, contributions to the community and relationships with suppliers are typically viewed as components of CSR.

Scherer and Palazzo (2011: 906) claimed that globalization is a given and not something we can opt out from and that this makes a new perspective on CSR necessary and unavoidable: In order to respond to the globalization phenomenon and the emerging post-national constellation, it is necessary to acknowledge a new political role of business that goes beyond mere compliance with legal standards and conformity with moral rules.

Corporate social responsibility is described as a leadership task. Board members and chief executives in an organization have a particular responsibility to make sure that the organization is in compliance with laws and regulations, and that the organization makes contributions to society wherever relevant. Chief executives should make the organization accountable, compensate for negative impacts, contribute to societal

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welfare, operate business ethically, take responsibility for society, and manage in relation with society. Engdahl (2013: 332) found that duality in terms of segregation of duties might ensure regulatory compliance in banking and finance: Today the segregation of duties is commonly used to ensure regulatory compliance in various industries. (…) The argument is made that an effective duality-based segregation-of-duties type control system presupposes social relations characterized by relative autonomy and third-party dependence, along with work task interdependence.

The chief executive officer (CEO) is the only executive at level 1 in the hierarchy of an organization (Davidson et al., 2019). All other executives are at lower levels. Above the CEO, a number of board members who have major positions elsewhere, show up from time to time. 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. Hambrick et al. (2015: 324) expressed surprise that investigative journalists succeed while board members fail: On the face of it, this study applauds the role of the press as governance watchdog, but it also raises deeper questions: If journalists could spot these frauds using public sources, why couldn’t the companies’ boards have detected them? For that matter, why couldn’t the boards have spotted the frauds when they were first being perpetrated? And what kind of tone did these boards set that would prompt their companies’ CEOs and other executives to engage in such acts and think they could get away with it?

CEOs typically enjoy substantial individual freedom in their professions with little or no control (Khanna et al., 2015). Fraud examiners recommend more control of CEOs because of failing compliance (e.g., Bruun Hjejle, 2018; Clifford Chance, 2020; KPMG, 2020a, 2020b; Plesner, 2020; Sands, 2019). It starts already with travel expenses by CEOs that typically find approval by a subordinate—the chief financial officer (CFO). Control of the CEO is less likely to succeed by a group of people—the board. Rather, the chairperson of the board should control

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and approve all financial activities of the CEO. Furthermore, the CEO should never be able to act alone in major business activities. The chief compliance officer in the organization should have a special assignment of monitoring CEO activities and reporting findings to the chairperson. Cowen et al. (2016: 152) suggested that employment contracts for CEOs should have a clause related to misconduct and crime: For example, a claw back could be triggered by a financial restatement that happens after an executive’s dismissal or by new evidence that surfaces indicating he or she engaged in misconduct while serving as CEO. Claw backs can also force terminated executives to repay benefits if there is evidence their actions have violated restrictive covenants.

As suggested in agency theory, CEOs have a tendency to become opportunistic agents (Shen, 2003). Based on their charisma, external stakeholders and board members lose control over CEO activities (Fanelli & Misangyi, 2006). Therefore, Cowen et al. (2016) proposal of employment contracts with repayment option may cause a decline in white-collar crime by CEOs. In the perspective of preventing and prosecuting corporate crime, Haines and Macdonald (2021: 299) argued that addressing corporate crime and harm is not simply an issue of enforcement and compliance: Neither is it one of digging deeper to find the ultimate root of the problem – the reproduction of power relations is nothing new to criminology. Understanding the direction of prevailing winds that shape business activity is important though in understanding where change is possible. Grappling with injustice is just that – looking for sources of influence ultimately requires going beyond blanket classifications of law – in all its forms – as either helpful or unhelpful, and understanding which law, from which place and used in which way within a field of struggle is important.

Lehman et al. (2020) introduced rule complexity as a research perspective on compliance. The perspective claims that it sometimes is impossible to understand what is right and what is wrong. Some laws, rules, and regulations are so complex that compliance becomes random. Some

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rules are more complex to the extent that they have more connections to or functional dependencies upon other rules in the same system.

Legalistic and Formalistic Approaches 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 (Gottschalk & Hamerton, 2023). 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 this thought, commonly accepted rules are fundamental for trustworthiness since they make behavior more predictable.

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Actors in auditing and compliance functions in business and public enterprises seem to have a preference toward formal rules and guidelines in the form of window-dressing rather than detection of potential offenders (Desai, 2016). Alon et al. (2019) argued that accounting and auditing functions have undergone a legitimacy crisis in recent years because of formal rather than substantial financial reviews. Compliance emerged as an important management topic following a stream of corporate scandals in the United States and many other nations. Companies and industries adopted internal policies and procedures for reporting and trying to prevent misconduct (Chen & Soltes, 2018: 119): Those efforts helped assuage legislators who had sought to more heavily regulate and penalize firms for dishonest practices. Self-policing appealed to business leaders as a way to avoid the cost and disruption of additional regulation. It also eased the investigative burden on regulators, and many people believed it would successfully deter wrongdoing.

But it did not. Compliance programs did not deter wrongdoing. Compliance programs served mainly as window-dressing to indicate a clean and professional front-end of the organization with all its problems hidden inside. Chen and Soltes (2018) argued that the solution to this problem is to link compliance initiatives to business objectives. Antitrust is yet another approach to compliance. Antitrust refers to laws, regulations, guidelines, and other measures that encourage competition by limiting the power of any particular firm and by preventing deviant executives from pursuing the route of crime networks such as cartels with other businesses in the same industry. An example mentioned by Edelman (2021) is the airline industry in the United States where there is an oligopoly of four major airlines. Antitrust is not only a matter of compliance at the organizational level but also at the national and global level as “a global consensus has emerged recognizing the central role that competition law plays in promoting a nation’s prosperity” (Yoo et al., 2021: 843).

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Compliance Audits and Risk Assessment Compliance audits gauge how well organizations ensure adherence to various applicable laws and other regulatory compliances (Thottoli, 2021: 137): It helps avoid risk of fines, penalties and closure of business. Compliance audit gives specific attention to assessing compliance by criteria derived from responsible authorities.

Compliance risk assessment is about introduction of a systematic approach to “the entity’s identification of relevant risks to achievement of its objectives, forming a basis for determining how risks should be managed” (Marchetti, 2012: 74). Risk assessment is a process that has to include potential deviant behaviors among board members and corporate executives to make more informed business decisions. As Koller (2005: 28) noted, “fostering a risk assessment process upon an organization will not only change how opportunities or liabilities are assessed but will significantly alter the way an organization makes critical decisions”. Some organizations are characterized by rotten apples, while others are characterized by rotten barrels (Boateng et al., 2021; Gottschalk, 2012). While it might be comforting to assume that there is only one bad apple when a corporate crisis occurs, compliance functions have to look for rotten barrels involving larger parts of the business. While occupational crime is associated with bad apples, corporate crime is associated with systems failure. Bad apples theory represents an individualistic approach in criminology, while systems failure theory represents a business approach in criminology (Heath, 2008: 601): If the individualistic approach were correct, then one would expect to find a fairly random distribution of white collar crime throughout various sectors of the economy, depending upon where individuals suffering from poor character or excess greed wound up working. Yet, what one finds instead are very high concentrations of criminal activity in particular sectors of the economy. Furthermore, these pockets of crime often persist quite stubbornly over time, despite a complete changeover in the personnel involved.

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It is certainly an interesting issue whether to view white-collar misconduct and crime as acts of individuals perceived as “rotten apples” or as an indication of systems failure in the company, the industry, or the society as a whole. The perspective of occupational crime is favoring the individualistic model of deviance, which is a human failure model of misconduct and crime. This rotten apple view of white-collar crime is a comfortable perspective to adopt for business organizations as it allows them to look no further than suspect individuals. It is only when other forms of group and/or systemic corruption and other kinds of crime erupt upon a business enterprise that a more critical look is taken of white-collar criminality. Furthermore, when serious misconduct occurs and is repeated, there seems to be a tendency to consider crime as a result of bad practice, lack of resources, or mismanagement, rather than acts of criminals.

Fraud Examinations of Compliance Failures At Wells Fargo in the United States, corporate control functions were constrained by the decentralized organizational structure (Shearman Shichor & Heeren, 2021; Sterling, 2017). 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. “That’s how they taught us to do it”. This is a phrase illustrating learned deviance and inadequate deterrence. Leasure and Zhang (2018) studied reports of Wells Fargo and Morgan Stanley being engaged in widespread fraudulent sales practices in the retail banking industry. They found that the underlying deviance had been taught by senior management, and that new employees were taught these fraudulent practices. Furthermore, they found that ethics and compliance practices and policies were largely ineffective in curtailing such conduct. Wells Fargo was fined $185 million for fraudulently opening accounts at its Community Bank. Community Bank opened as many as two million fake accounts in an effort to meet wildly unrealistic sales goals. The CEO at Community Bank resigned before the fraud examination report by Shearman Sterling (2017) was published. The

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Community Bank at Wells Fargo was held responsible based on two laws, the Sarbanes–Oxley Act and the Dodd-Frank Act (Shichor & Heeren, 2021: 105): Both laws have provisions for claw backs of compensation, which is a notable feature of the penalties imposed on Wells. In addition, both laws require corporations to be concerned about internal governance, including the operation of the Board, corporate risk and compliance, and improved shareholder input. Sarbanes-Oxley reinforces these concerns by criminally penalizing any interference by a corporation which obstructs a governmental investigation of the corporation. This kind of provision seems to have played an important role in the ongoing revelations about the misdeeds of Wells Fargo.

At Samherji in Iceland, it was detected by investigative journalists that the fishing company was involved in corruption in Africa to obtain fishing rights along the coast of Namibia (Kleinfeld, 2019, 2020). Samherji (2020) then published the following press release on July 29, 2020, using the company website (https://www.samherji.is/en/moya/ news/samherjis-namibia-investigation-finalized) to emphasize corporate commitment to compliance after a fraud examination by law firm Wikborg Rein: Long before Wikborg Rein’s conclusions emerged, Samherji put in place a number of measures to safeguard against further exposure to wrongdoing committed by individuals. All operations in Namibia were stopped already in 2019. On 17 January 2020 Samherji announced that it was in process of launching a modern state-of-the art compliance program which is being implemented throughout our global organization this year: https://www.samherji.is/en/moya/news/samherji-to-implementcorporate-governance-and-compliance-system. That work is already well underway. Samherji’s ambition is to be a pioneer in compliance, governance and internal control within the global fisheries industries. Samherji will also proactively keep reaching out to relevant authorities that show dedication to mutual cooperation, offering assistance and cooperation during ongoing investigations into the Namibia-related allegations. An agreement is now made for Wikborg Rein to meet with the

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Icelandic District Prosecutor in the fall. Several meetings have further been held with Namibian authorities in an effort to explore the basis for similar cooperation there.

At General Motors in the United States, sufficient resources for executives comprehensively to address safety and compliance issues were not ensured. The internal investigation report by Valukas (2014) was concerned with the safety defects in the Cobalt at GM. The fraud examiners found that departments, divisions, and groups did not have substantial responsibilities concerning the identification, investigation, or remediation of safety issues. No regular communication with employees about safety took place at GM. There was no awareness of safety issues. Employees were not encouraged to raise any concerns they had about safety or compliance. There was a culture of fear of retaliation when employees reported concerns regarding actual or potential safety-related defects or potential non-compliance with the federal standards. Owners of safety and compliance issues could not be identified at GM. Therefore, accountability could not be addressed. Internal roles did not define responsibilities and accountability for those involved in processes related to the evaluation and resolution of safety issues, including responsibilities for feeding items into the relevant work process. Roles of committees were not clarified. A person on each such committee was not designated as a safety liaison with responsibility for elevating safety issues. Appropriate identification, elevation, and resolution of safety and compliance issues were not included as a factor in employee performance evaluations. Employees were not required to certify that they had reported any safety issues, which they were aware of, and to identify, as part of that certification, any safety issues they were aware of that had not been resolved. Coordination between groups was never formalized, and no coordination occurred between engineering teams with accountability for safety and compliance issues. The CEO, who had hired Valukas (2014), was blamed in the fraud examination report. Others further down the GM hierarchy were attributed blame and had to leave the corporation as organizational scapegoats. At Wirecard in Germany, fraud examiners from KPMG (2020a, 2020b) did not provide a clean bill of health since they in their report

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criticize Wirecard’s internal controls and compliance functions. In their final report, examiners detailed shortcomings in Wirecard’s internal controls and compliance functions and outlined severe doubts about the company’s accounting practices. However, fraud examiners did neither confirm nor reject accounting manipulation and other kinds of financial wrongdoing. Therefore, Wirecard management quickly stated that “no evidence was found for the publicly raised allegations of balance sheet manipulation” (Storbeck, 2020). Nevertheless, the financial enterprise collapsed half a year later. While some ignored violations of laws in achieving goals, others wanted to watch compliance, which created an ethical climate conflict. The CEO was arrested in June 2020. The second-in-command who oversaw operations in Asia escaped arrest and was on the run. A key Wirecard business partner suddenly died. Consultants 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 Financial Times (Storbeck, 2020). At the Office of the Sheriff in Philadelphia in the United States, contracts did not find compliance with the terms of the home rule charter, but they were not readily accessible for public review, and were not internally circulated and made known within the Office of the Sheriff (Deloitte, 2011: 14): The deficiencies in the contracting process weakened the Sheriff ’s Office ability to determine the accuracy and legitimacy of vendor invoices, particularly those of the Office’s largest vendor.

The sheriff and his office did not exercise oversight of the invoices and did not minimize advertising costs and other expenses. Under the sheriff ’s tenure, there were few internal controls relating to vendor invoices, and their fees. The director of compliance in the office did not notice any deviance. At the International Biathlon Union in Austria, there were no restrictions on being the union president and how many periods he could be in such a central position without being replaced. The IBU president

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had been a central figure in shaping the business, culture, ethics, structure, and compliance of right and wrong at IBU as an organization. The suspected fraud was concerned with the president receiving favors and bribes from Russian biathlon union officials in terms of expensive adventure trips and access to Russian prostitutes. When the report by the Commission (2021) was published, the president resigned and became subject to criminal investigation. At British Petroleum in the United States, Freeh (2013) had a mandate of examining and evaluate the internal compliance program in their claims office. In the aftermath of the Deepwater Horizon oil spill on April 20, 2010, and in an effort to begin to fulfill its obligations under the Oil Pollution Act, British Petroleum established a facility to receive and to process claims. They paid compensation to individuals and businesses affected by the spill. The BP facility paid claims for losses resulting from lost earnings or lost profits, removal and cleanup costs, damage to real or personal property, loss of subsistence use of natural resources, and physical injury or death. The total compensation was $11 billion. Freeh (2013) concluded that attorneys in the claims office might have violated the federal criminal statutes regarding fraud, money laundering, conspiracy, or perjury. The investigator recommended that law enforcement should take over the case and conduct a criminal investigation in this matter. Attorneys had both been presenting claims on behalf of victims as well as approving claims on behalf of petroleum company BP. It was a profitable assignment for attorneys, and some attorneys made it allegedly even more profitable for themselves by kickbacks and by both applying for and approving compensations. At Oceanteam in the Netherlands, a consequence of the fraud examination by Sands (2019) was that both the chairman and the chief executive had to leave their positions at the corporation. Another consequence was the complete restructuring of compliance functions. However, the new management did not appreciate the investigation report by Sands (2019). They distanced themselves from the whole investigation affair, and they expressed dissatisfaction with the costs that the company had to carry for the examination that was initiated by a shareholder. At the social security agency in Norway, they were reluctant to comply with European EEA rules. The reluctance of an agency to comply with

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EEA rules becomes stronger when the rules are both complicated and in conflict with political priorities. Over the course of many years, the Norwegian Labor and Welfare Administration (NAV) has applied the requirement of stay in Norway under the Norwegian National Insurance Act for recipients of social security benefits such as sickness compensation, attendance allowance, and work assessment allowance in a manner contrary to and in conflict with European commitments. However, within Europe, Norwegians are allowed to move freely independent of their status. Employees at NAV as well as ministry officials, police investigators, state prosecutors, defense lawyers, judges at criminal courts, officers at correctional institutions, academic researchers, and law professors have all ignored or misunderstood European social security regulations. While not a member of the European Union, Norway has signed a number of treaties requiring the country to align with most EU regulations. Many innocent Norwegian welfare recipients have been incarcerated wrongfully because NAV claimed it was illegal for them to stay in other European countries while receiving the generous social benefits from their home country Norway (NOU, 2020).

Maturity Model for Corporate Compliance Stages of growth models for maturity levels help to assess and evaluate a variety of phenomena (e.g., Chen et al., 2021; Masood 2020; Mondani & Rostami, 2021; Röglinger et al., 2012; Solli-Sæther & Gottschalk, 2015). Stage models predict the development or evolution of investigative maturity from basic performance to superior results (Iannacci et al., 2019: 310): They also suggest that this development is progressive (i.e., each successive stage is better than the previous one), stepwise (i.e., each step is a necessary prerequisite for the following step in the sequence), and prescriptive (i.e., each step must occur in a prescribed order in accordance with a preexisting plan or vision), thus emphasizing the chain of successful events rather than the mechanisms by which subsequent stages come about.

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Antonsen and Madsen (2021) suggested a maturity model for the compliance function of investment firms. Their assessment model for compliance maturity suggests a path of evolution wherein the compliance function matures from being reactive and inconsistent to becoming a proactive and integrated part of an investment firm’s business practice. They defined a number of key enablers of a compliance function in the areas of technology, coordination, policies and processes, resources, and business integrity. Technology is applied to increase effectiveness, efficiency, and transparency. Coordination is a matter of improved cooperation and communication. Policies and processes work better when they are clearly defined and implemented. Appropriate resources must be allocated to the compliance function. Business 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). Integrity refers to taking responsibility for the representation of the self and one’s commitments (Gardiner et al., 2017). The maturity model suggested by Antonsen and Madsen (2021) has four levels: • Level 1: Reactive and inconsistent. All processes are manual, no systems in place; no functional access and communication with other business lines; policies and processes not documented, ad-hoc response to incidents; insufficient resources allocated; and compliancy viewed as a necessary evil. • Level 2: Organized but reactive. Some processes are automated while others are manual; defined lines of communication with other business lines and mutual functional access; defined and documented compliance function but not integrated into the workflow; appropriate resources necessary to achieve compliance; and business ethics and values are defined centrally. • Level 3: Actively managed and understood. All processes are supported by automated systems; all business lines work toward shared goals and initiatives; compliance function understood by employees and integrated into the workflow; scalable risk-adjusted resource deployment assessment of resources done periodically; and time is spent consulting and involving employees in business ethics and values.

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• Level 4: Proactive and implemented. All processes are supported by and integrated in one and the same automated system; alignment of strategy, processes, and technology to shared goals to improve effectiveness; compliance function integrated into the workflow, continuously measured and improved; resources continuously monitored and effectively adapted to changes in compliance requirements; a healthy compliance culture is fostered, and employees naturally promote it. Antonsen and Madsen (2021) tested their compliance model based on an interview with the head of compliance and risk at a Norwegian investment firm. The interviewee was concerned with an effective compliance function described as working among management and employees preventively by explaining why the regulations are formed as they are. The interviewee emphasized that compliance principles serve as a sales argument to the firm’s clients. In terms of the compliance model, the researchers found that the firm was at level 4 regarding business integrity since the board and management focused on building a compliance culture. When and where in doubt, control systems were in place to ensure that optimal priorities applied. Policies and processes as well as resources were also assessed at level 4. Coordination was assessed at level 3 since communication gaps could still be found. Technology was assessed at level 2 since some processes were automated while others were performed manually.

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12 Gendered Perspectives on Social License and Corporate Crime

Traditionally, men in executive positions have been responsible for deviant and criminal acts that have threatened and potentially violated the social license to operate, however, the participation of women is much less clear. Interpreting this field, this chapter is founded on empirical evidence of stable female involvement in white-collar crime independent of the extent of gender inequality in India, Norway, Portugal, Iran, and the United States, with relative convenience emerging as a potential explanation of the stability. Here the authors argue that increased opportunity convenience of committing and concealing financial crime in an organizational setting from greater gender equality is associated with reduced motive and willingness to commit and conceal financial crime for potential female offenders. The chapter attempts to move beyond the traditional perspectives of emancipation versus focal concern, which argue that less inequality will increase women involvement in white-collar crime versus women socializing into accepting responsibilities for social concerns by caring for others. Examining the notion of gendered corporate social license the chapter considers convenience theory propositions which include gender motive variability, gender willingness variability, and associated perceptions of the glass ceiling and the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_12

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glass cliff and the impact of such concepts on the study of corporate crime. The term white-collar criminal primarily refers to a person of respectability and high social status who commits financial crime in the course of his or her professional occupation. Sutherland (1939, 1983) was the first to use the term, and several academics have since applied it in their research (e.g., Benson & Harbinson, 2020; Dodge, 2009; Galvin, 2020; Goulette, 2020; Holtfreter, 2015; Logan et al., 2019; Salimi, 2009; Simpson et al., 2022). The term pink-collar criminal, coined by Daly (1989a, 1989b), refers to a woman committing white-collar crime in her professional setting. Kamaei and Abolhasani (2020: 431) argued that one of the most significant characteristics of white-collar crime is that Sutherland only took men into account when identifying white-collar offenders: Sutherland’s definition excludes women. Historically, women have been institutionalized through discrimination in customary laws and rights; they were prohibited from entering higher economic classes.

The extent of women involvement in white-collar crime has traditionally been explained by the emancipation hypothesis suggesting that more gender equality will lead to more women involvement (Lutz, 2019; Steffensmeier et al., 2013). Equality is related to empowerment that reflects women’s decision-making power (Noor et al., 2021), where women’s business networks can reflect power and influence (Villesèche et al., 2022). An explanation for the potential lack of increase in women involvement by improved equality is the focal concern hypothesis suggesting that women involvement will not necessarily grow since women have concerns different from men (Benson, 2020; Benson & Gottschalk, 2015; Steffensmeier et al., 2013). This chapter adds to the research on women involvement by application of the convenience triangle suggesting that financial motive as well as personal willingness can become weaker and compensate for more convenient opportunities to commit and conceal pink-collar crime (Gottschalk, 2022). Specifically, this chapter addresses the following

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research question relevant for gender theory: Why does the female fraction of white-collar crime not change with change in gender equality?

Emancipation Versus Focal Concern The emancipation hypothesis suggests that incidents of women in whitecollar crime will increase as access to opportunities increases as part of an emancipation process (Benson & Gottschalk, 2015; Steffensmeier et al., 2013). Historically, the idea that greater gender equality will lead to increased female involvement in crime represents the emancipation hypothesis (Lutz, 2019). This hypothesis emerged in the mid-1970s in early research on gender and crime. According to the gendered focal concern hypothesis, socialization leads to women accepting responsibilities for caring for others (Laue & Sampson, 1988), emphasizing the value of interpersonal connections and altruistic attitudes toward others. Women acquire identities as caregivers through the incorporation of these responsibilities. According to Benson’s (2020: 10) definition of gendered focal concern: The gendered theory of focal concerns holds that there are sociological and social-psychological differences between men and women that make it more difficult for women to engage in crime than men. Men and women have different focal concerns that organize how they behave and relate to others. Women are expected to fulfill nurturing role obligations, be affectionate and caring toward others, and approach relationships in a cooperative and sharing spirit. In contrast to the group-oriented concerns of women, the focal concerns of men are shaped by an individualistic and competitive orientation toward life, an orientation that values autonomy, dominance, control, and risk-taking. Because crime tends to have injurious or exploitive effects on others, engaging in crimes runs counter to the nurturing and cooperative construction of the female role in society. This issue makes it more difficult for women to engage in and justify criminal behavior. Although the competitive and aggressive construction of the male role does not explicitly call for criminal behavior, it is more compatible with such behavior, especially for financially oriented crimes or motivated by a desire to get ahead in life or protect what one has.

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The gendered focal concern implies that women will commit less crime. Women will only commit economic crime consistent with their roles, resources, and opportunities as a means of provisioning, that is, “to provide for the material betterment of family member and others close to them” (Molinet & Brezina, 2022). A study by Gupta et al. (2020) that examined chief financial officers (CFOs) in terms of gender and financial statement irregularities serves as an illustration. They discovered that when governance is poor, companies with female CFOs are less likely to engage in financial misreporting than similar companies with male CFOs. The gendered focal concern is not always related to personal identity. Social identity can affect the gender of the focal concern. According to the social identity perspective, the group becomes a significant source of pride and self-esteem once a person categorizes and identifies herself as a woman, and thus as a member of a particular group, and gains physical and psychological resources from the group membership. This increases the likelihood that group members—in our case, women—are obliged and willing to conform to and protect the extant norms. The interpretation and identification processes interact. Women thus protect the established norms according to their experience and the value of being a woman (Huang et al., 2020).

Empirical Gender Studies There are few empirical studies of women involvement in white-collar crime. The only known studies represent empirical evidence from Iran, the United States, and Norway. These studies are nevertheless important, since the three countries are located at different ranks on the global gender gap index. Regarding gender equality in each country, Iran is ranked 143, the United States is ranked 26, while Norway is ranked 3 (out of 146 countries), according to the index for 2022 from the World Economic Forum. Although women make up more than 50% of Iranian university graduates, they only make up 17% of the labor force. Ghorchibeigi (2019) studied a small sample of 19 white-collar offenders convicted to prison.

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There was only one woman offender in the sample, so that the female fraction was 5%. A different sample from court records was obtained by one of the researchers, where 2 women out of 45 defendants could be identified; thus suggesting a female fraction of 4%. A third Iranian sample was one single crime case involving 22 defendants with one female defendant representing 5% of the defendants. However, women’s criminal acts are often not reported since few are willing to blow the whistle (Jalilvand et al., 2017). As argued by Ghaffari et al., (2022: 1707), Iran is “a deeply conservative society”. Hoodfar and Sadr (2010: 885) discussed Islamic politics and women’s quest for gender equality in Iran: The unification of a strong authoritarian state with religious laws and institutions after the 1979 revolution in Iran has resulted in the creation of a dualistic state structure in which non-elected and non-accountable state authorities and institutions—the majority of whom have not accepted either the primacy of democracy nor the premise of equality between men and women (or Muslims and non-Muslims)—are able to oversee the elected authorities and institutions. The central question posed by this paper is whether a religious state would be capable of democratizing society and delivering equality.

The increase in women’s economic participation in Iran is evident when looking at “the index of gender development and increase in women’s participation in Iran, but there is still a significant difference between the participation rate of women and men” (Modaressi Alam et al., 2017: 111). In Iran, the consequences of white-collar crime are considered “wider than others”, and white-collar criminals are “far more dangerous” (Nasiri, 2014: 7). Furthermore, these criminals directly “affect the national security of the country” (Monazamitabar, 2009: 141). In a study of the gender breakdown of defendants in the Enron and post-Enron financial scandals in the United States, Brickley (2006) found that only 7% were women. A study of people convicted in the US federal judicial system found that women comprised less than 5% of the antitrust, securities, tax, and bribery offenders (Wheeler et al., 1988). Steffensmeier et al. (2013) found that 9% of the 436 defendants in CFTF cases were female.

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Out of 329 individuals identified in newspaper reports in Norway, only 7% were women (Benson & Gottschalk, 2015). The 329 convicts were involved in 162 criminal cases. A majority of the 162 cases (98 or 60%) had only one offender; the number of people involved in the other cases (64 in total) ranged from 2 to 16 persons, with the average being 3.5 for each criminal case. Of the 64 cases involving several offenders, 50 were all-male groups, while 14 were mixed-gender groups. There were no all-female groups. A small sample of 23 white-collar offenders convicted of corruption in Portugal had 3 female offenders, according to a presentation at the Eurocrim 2022 conference in Spain. The female fraction was thus 13%. Portugal is ranked 29 on the gender index. Statistics in India show a female fraction of 11%, according to research at Shoolini University. India is ranked 135 on the equality index (Angrisani et al., 2020; Bhosle, 2009; Jain et al., 2022; Mishra et al., 2021; Verma & Kumar, 2008). A total of five observations are illustrated in Fig. 12.1 with Norway (rank 3, 7%), the United States (rank 26, 5%), Portugal (rank 29, 13%), India (rank 135, 11%), and Iran (rank 143, 5%). As is visually obvious there seems to be no relationship between the extent of gender equality and the fraction of female offending in white-collar crime. Based on this limited, yet significant, empirical basis, we set out to discuss why the female fraction of white-collar crime does not change with change in gender equality. In settings with high levels of gender inequality, women tend to perform worse than males in terms of human capital accumulation and health (Homan, 2019; Lee et al., 2021; Lei et al., 2012). Jain et al. (2022) in their research of the life cognition investigated the position of women in India and determined that there is a significant discrepancy in the social, economic, and educational gender levels. India presents an interesting case study, as the female gap in latelife cognition remains largely unaccounted for even after controlling for education and health issues, as the Gender Inequality Index (GII) for India is at an all-time low of 0.490, a decrease of 0.003 from the previous index, due to a decrease in the participation of women in parliament and a shift in the labor force.

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Portugal

12

India

10 8 Norway 6

United States

Iran

4 2 0 0 Fig. 12.1

20

40

60

80

100

120

140

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Female offending fraction and gender equality index

When we analyze the reasons why crime is committed and the proportion of male and female perpetrators, the results might be extremely intriguing (Verma & Kumar, 2008). Various scholars have researched these topics and developed the following hypotheses on female criminality as listed in Table 12.1. Research confirms that the gender pay gap leads women to earn less than men; more women than men remained at home and abandoned their jobs during the epidemic, shouldering the added family cost (UN Women India, 2021). Crime against and committed by women has increased in India (Mishra et al., 2021). While analyzing statistics in India (Crime & Bureau, 2020), where white-collar crime is researched under the heading of economic crime and further subdivided into criminal breach of trust, we came across the term “criminal breach of trust”, wherein the percentage of arrested female offenders is between 2 and 3% between the year 2016 to 2021. Person charge sheeted nearly 3% of the total offenders. Person convicted of the charges nearly 1%. Person discharged between 2 and 0.2%. Person acquitted have risen from 0.54% to 1.99%.

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Various gender perspectives on perpetrators

Name of the author/Year

Name/Basis of the theory

Lombroso and Ferrero (1895)

Atavism

Brush (1993)

Frances Kellor (1873–1952)

Book/Paper

Findings

The Female Offender

Exhibiting antisocial conduct were relics of the past. It was believed that the born female criminal had the criminal traits of males and the worst attributes of women The professional discourse of single mothers The environment is more essential than any other factor when it comes to criminal behavior On the majority of exams, reformatory convicts scored worse; they had lower IQs and were more dissatisfied, unstable, distrustful, and illogical We might decrease female crime with improved indoctrination into “normal” gender roles Believed prostitution was structurally necessary; that it provided a necessary social role Both mental instability and poor economic conditions led to criminal activity

Worthy Widows, Welfare Cheats Social environment

Clara “Jean” Weidensall (1900)

Thomas (1863–1947)

Psychology

Kingsley Davis (1908–1997) in Davis (1997)

Need

Sheldon (1896–1980) and Eleanor (1898–1972)

Social and hereditary

Five Hundred Delinquent Women (1934)

(continued)

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Table 12.1

291

(continued)

Name of the author/Year

Name/Basis of the theory

Sutherland et al. (1992)

Behavior

Book/Paper

Meda ChesneyLind and Lisa Pasko (1997)

The Female Offender: Girls, Women and Crime

Bhosle (2009)

Female Crime in India and Theoretical Perspectives of Crime

Findings Learned through interaction with other persons leading to the theories of the fraud triangle Public discomfort with the notion of women as criminals has a substantial effect on the treatment of this offender demographic This book examines the character of criminals and the patterns of female crime, as well as provides theoretical insights on female criminality

When studied under the head of counterfeiting percentage of arrested female offenders is between 2.5% and 2.7% between the years 2016 to 2021, Person charge sheeted nearly 2.4% of the total offenders. Person convicted of the charges nearly 0.5%. Person discharged have varied from 0.6% to 0%. Person acquitted have risen from 0% to 3.4%. When studied under the head of forgery, cheating, and fraud, percentage of arrested female offenders is between 4.03% and 5.10% between the years 2016 to 2021. Person charge sheeted nearly 3.7% to 4.11% of the total offenders. Person convicted of the charges is nearly 2.06 to 2.2%. Person discharged have varied from 3.48% to 2.74%. Person acquitted have risen from 3.7% to 4.4%.

Convenience Theory Propositions Convenience theory is an emerging theoretical perspective to explain the phenomenon of white-collar crime where convenience was first introduced as a core concept by Gottschalk (2017). Recently, the theory has

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been reviewed (e.g., Chan & Gibbs, 2020; Hansen, 2020; Oka, 2021; Vasiu, 2021; Vasiu & Podgor, 2019) and applied by several scholars such as Asting and Gottschalk (2022), Braaten and Vaughn (2021), Dearden and Gottschalk (2021), Desmond et al. (2022), Qu (2021), Stadler and Gottschalk (2022), and Sterri and Borge (2022). The theory suggests that offenders have a financial motive based on possibilities or threats, an organizational opportunity to commit and conceal financial crime, and a personal willingness based on choice or perceived innocence. Figure 12.2 illustrates the structural model of convenience theory where 14 convenience propositions are visible on the right-hand side of the figure. The idea is that a stronger financial motive, a more attractive organizational opportunity, and a higher level of willingness will increase the tendency to commit white-collar crime. We assume that gender equality is related to opportunity convenience, where increased gender inequality is associated with lower opportunity convenience, while increased gender equality is associated with higher opportunity convenience. This assumption implies that female offenders in high-equality countries have higher status and more legitimate access to resources to commit crime when compared to female offenders in low-equality countries. Furthermore, female offenders in high-equality countries have easier ability to conceal crime in times of institutional deterioration (decay), lack of oversight and guardianship (chaos), and the presence of criminal market forces (collapse) when compared to female offenders in low-equality countries. Therefore—ceteris paribus (everything else assumed constant)—the consequence of rising gender equality would be increased pink-collar crime convenience. This means that if the two remaining angels stay unchanged—that is the strength of motive as well as willingness— then the tendency to commit crime increases, and we would expect a rising female fraction among white-collar defendants, convicts, and incarcerated. However, as empirically evidenced from Iran, the United States, Portugal, India, and Norway, the female fraction of white-collar crime does not change with change in gender equality and thus not with change in the opportunity structure. Therefore, we search for explanations why motive and/or willingness might experience decline in countries

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GREED POSSIBILITIES GOAL MOTIVE STRAIN THREATS BANKRUPTCY STATUS

CONVENIENCE

COMMIT ACCESS OPPORTUNITY

DECAY CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS

JUSTIFICATION INNOCENCE NEUTRALIZATION

Fig. 12.2

Structural model of convenience theory

with gender equality compared to countries with gender inequality. We formulate the following research hypothesis regarding dynamic influence from organizational opportunity: Increased opportunity convenience of committing and concealing financial crime in an organizational setting from greater gender equality is associated with reduced motive and willingness to commit and conceal financial crime for potential female offenders.

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Gender Motive Variability In the financial motive dimension, greed exemplified by climbing Maslow’s (1943) hierarchy of needs might become weaker for women in gender-equality nations compared to women in gender-inequality nations. In equality nations, women tend already to be at an acceptable level in the hierarchy. Therefore, a sub-hypothesis might be: Greater gender equality is associated with higher levels in the hierarchy of needs for women that reduce the motive to commit and conceal financial crime for potential female offenders to climb the hierarchy of needs. Regarding strain from threats (Agnew, 2012), it might be argued that women in equality nations are facing fewer financial threats as they are independent compared to women in gender-inequality nations: Greater gender equality is associated with less financial strain for women that reduce the motive to commit and conceal financial crime for potential female offenders. This is along the occupational crime perspective to benefit self. Along the corporate crime perspective of benefitting the business, women might be less occupied with goals (Jonnergård et al., 2010), and they might be less concerned with saving the business from bankruptcy, leading to the following sub-hypthesis: Women in top business and public positions are less likely to commit financial crime to achieve business goals and to avoid corporate bankruptcy compared to men. Furthermore, restoring the perception of equity might be a stronger motive for financial crime in gender-inequality nations compared to gender-equality nations (Leigh et al., 2010). The equity perspective suggests that the potential offender compares her work efforts to another person or group of persons chosen as reference (Cullen et al., 2020). A situation evaluated being without equity will initiate behavior to reestablish equality and to remove the feeling of discomfort (Kamerdze et al., 2014; Martin & Peterson, 1987; Roehling et al., 2010). The equity perspective proposes that individuals perceiving being unfair rewarded will feel distressed and therefore try to restore the perception of equity (Clark et al., 2010). Potential offenders may choose from one or more different referents—or standards—in determining the equitableness of their pay (Martin & Peterson, 1987). Organizational setting may influence an individual’s equity sensitivity level, as

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employees with advanced education might develop abstract moral principles differentiating themselves from rules, implementing their own autonomous principles, as well as constructing personal opinions of what is right and what is wrong (Roehling et al., 2010). The equity perspective is linked to the social exchange perspective, where there is a norm of reciprocity. Social exchange considers executives and other trusted employees as partners with the employer, who exchange valued contributions. Organizational actors accomplish their work through roles, and the interpersonal exchange relationships determine to some extent the type of role that people will play (Andersen, 2022). A simple way of restoring financial equity is by embezzlement (Cardao-Pito, 2021). Some women as followers can attempt to restore the feeling of equity by committing crime (Zhong & Robinson, 2021: 1441): We found a collection of studies showing beneficial consequences after specific types of harmful behavior. More specifically, when actors experience or witness injustice, mistreatment, or wrongdoing by others, such as after witnessing others’ transgressions, responding to it with negative acts can lead to emotional benefits. This benefit may not necessarily come from conducting behavior that is negative per se but may emerge from any behavior that regulates the emotion via righting a wrong or restoring a sense of equity.

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 a treatment as lesser than or different from others (Bell & Khoury, 2016; Väyrynen & LaariSalmela, 2015). We suggest that the desire to restore the perception of equity and equality as a motive for financial crime is weaker for women working in gender-equality countries compared to women working in gender-inequality countries and thus the following sub-hypothesis: Greater gender equality is associated with increased perception of equity that reduces the motive to commit and conceal financial crime by potential female offenders. Agnew (2014) introduced the motive of social concern and crime, where there is a desire to help others, and thus moving beyond the

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assumption of simple self-interest. However, as argued by Paternoster et al. (2018), helping others can be a self-interested, rational action. The self-interest or self-regarding preference and rationality can imply interest in other’s materialistic well-being. While the economic model of rational self-interest focuses on incentives and detection risks and associated costs (Welsh et al., 2014), Agnew (2014) suggested that economic crime can also be committed when individuals think more of others than of themselves. The concern for others might be more in the forefront among women compared to men, leading to the following sub-hypothesis: Greater gender equality enables women to a greater extent to help others, thereby reducing the motive to commit financial crime out of social concern for others.

Gender Willingness Variability As illustrated in Fig. 12.2, willingness can derive from choice (Shover et al., 2012) or innocence (Engdahl, 2015). The choice of crime can be based on identity (Crank, 2018), rationality (Kamerdze et al., 2014), or learning (Sutherland, 1983); while the perception of innocence can be based on justification (Schnatterly et al., 2018) or neutralization (Sykes & Matza, 1957). In our perspective of gender equality and inequality, we are searching for potential explanations for reduced willingness in countries with greater gender equality. It seems difficult to argue that potential female offenders in more gender-equality nations suffer less from deviant identities or suffer less from learning by differential association. However, it might be argued that it is less rational for women to commit financial crime in more gender-equality countries as the benefits can be perceived as less attractive while the costs remain the same: Greater gender equality is associated with financial crime having weaker benefits compared to costs making the benefit–cost ratio less attractive. In the perspective of innocence, both the ability to justify crime and the ability to neutralize guilt feelings might be reduced in gender-equality nations compared to gender-inequality nations. For justification we thus

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suggest the following sub-hypothesis: Greater gender equality is associated with reduced opportunity to justify financial crime by potential female offenders. Neutralization is a matter of reducing and potentially removing guilt feelings when committing crime, where a number of neutralization techniques exist. Some of the frequent neutralization techniques are disclaiming responsibility for crime, refusing damage from crime, refusing victim of crime, condemning those who criticize, founding crime on higher loyalties, claiming blunder quota, claiming legal mistake, claiming normality of action, claiming entitlement to action, claiming solution to dilemma, justifying necessity of crime, claiming role in society, and perceiving being victim of incident. Taking the last neutralization technique as an example, the following sub-hypothesis can be formulated: Greater gender equality is associated with less effective application of the neutralization technique of being a victim of incident for potential female offenders in financial crime.

Glass Ceiling and Glass Cliff The glass ceiling and the glass cliff are two metaphors used to explain why women have limited involvement in white-collar crime. The glass ceiling suggests that women do not reach the top. They can see the top of the organization through the glass where only men are present as top executives. The glass ceiling is a metaphor referring to an artificial barrier that prevents women from being promoted to executive-level positions within organizations. As long as a glass ceiling exists for many women in terms of promotion to top positions, women have less opportunity to commit white-collar crime (Dodge, 2009; Langton & Piquero, 2007). The low fraction of female offenders in Iran and other similar countries has traditionally been explained by gender-specific career and organizational positions, as well as the glass ceiling for women in organizations (Kolade & Kehinde, 2013). When women break through the glass ceiling, they can end up on the glass cliff where they face more perils, risks, and difficulties compared to their male counterparts (Gupta et al., 2020). For example, female CEOs perceive greater termination vulnerability compared to men (Klein

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et al., 2019; Zhang & Qu, 2016). The glass cliff metaphor captures the dangers of falling from the heights of elite positions. Organizations are social arenas where people develop relationships with one another (Brands & Mehra, 2019), and the survival on the glass cliff is dependent on female influence tactics. The low fraction of female offenders in Norway and other similar countries has been explained by the genderspecific vulnerability in top positions where they tend to be excluded from the traditional all-men networks that keep each other in top positions, and where women’s business networks can reflect power and influence (Villesèche et al., 2022) without compensating for the lack of solidarity that males on the glass cliff can experience. Several management researchers have studied the gender wage gap (e.g., Benson & Gottschalk, 2015; Croall, 2003; Holtfreter, 2015; Lutz, 2019; Steffensmeier et al., 2013). A slightly non-traditional perspective was chosen by Leslie et al. (2017) who found that some women experience a reverse wage gap. The study proposes a female premium for certain women. Organizations can perceive high-potential women—who have the abilities needed to reach the upper echelons of organizations, where women remain underrepresented—as more valuable for achieving organizational diversity goals than high-potential men. Therefore, such organizations reward exceptional women with higher pay. Also, Mun and Jung (2020) observed a reversal of the gender gap when they studied some companies that pushed gender diversity by favoring women to top positions. A third example of the reversal of the gender gap is liberal boards and committees who prefer to promote women rather than men to elite positions in organizations (Carnahan & Greenwood, 2018). A fourth example of potential reversal of the gender gap is the recognition of expertise, where Joshi (2014) suggests that the person conducting the evaluation can favor females’ outcome in problem-solving. As illustrated by topics such as the glass ceiling, the glass cliff, and the gender wage gap, there are a number of issues that may go beyond the gender equality index from the World Economic Forum in explaining the positions of women in society. Such issues might be studied in future research on women involvement in white-collar crime. The research presented in this chapter was limited in its attempt to explain a stable female fraction at varying gender inequality by the

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theory of convenience. However, one main hypothesis and several subhypotheses were introduced that are suitable for future research on women involvement in white-collar crime. Women and white-collar crime has been a research subject over the past several decades. In explaining the statistics of offenses committed by women, some theorists, such as Pollock (1950), believed that the number of criminal incidents committed by women is underreported in official statistics. It is a result of the actions of public servants, including police officers and judges. According to Pollock (1950), both men and women commit crime. However, women’s criminal acts are often not reported, few are willing to blow the whistle (Jalilvand et al., 2017), and as a result, their wrongdoing remains hidden due to their relative secrecy (Garrett, 1987). Today’s research findings, however, show that although women are less likely than men to commit white-collar crime, the reported female fractions seems lower than it should be (Abade & Miller, 2022; Benson & Gottschalk, 2015; Croall, 2003; Daly, 1989a, 1989b; Gottschalk & Glasø, 2013; Gottschalk & Smith, 2015; Holtfreter, 2015; Steffensmeier et al., 2013). The results encouraged researchers to carry out more research on gender differences in whitecollar crime (e.g., Benson & Harbinson, 2020; Dearden & Gottschalk, 2021; Galvin, 2020; Gottschalk & Gunnesdal, 2018; Goulette, 2020; Reese & Constantin, 2021; Reese & McDougal, 2017; Ruhland & Selzer, 2020). In conclusion, based on limited empirical evidence of a stable women involvement in white-collar crime independent of the extent of gender inequality in various countries, this chapter has suggested relative convenience as a potential explanation of the stability. We argued that increased opportunity convenience of committing and concealing financial crime in an organizational setting from greater gender equality is associated with reduced motive and willingness to commit and conceal financial crime for potential female offenders. Among fourteen potential convenience propositions, we suggested reduced motive from levels in the hierarchy of needs, from financial strain, from business goals, from perception of equity, and from social concerns. We suggested reduced

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willingness from less attractive cost–benefit ratio, from less opportunity for justification, and from less opportunity for neutralization of guilt.

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13 Making Sense of Deviance: Comparative Perspectives

While business conformance is the main issue in this book, the authors reason that it does not help to argue for and claim business conformance if lack of conformance is not understood. It is important to understand a negative phenomenon to be able to avoid it. Simply stated, “it takes a criminal to catch a criminal”, or “it takes a thief to catch a thief ”. Therefore, this final chapter explores empirically how deviance in the form of white-collar crime can be understood as an affront, or assault, on the social license. Founded on original comparative fieldwork into executive decision-making conducted in India, Norway, Iran, and the United States, the empirical study presented links respondents’ self-reported extent of understanding of the white-collar crime phenomenon to propositions in convenience theory. While it is beyond the scope of this book to conclusively extrapolate clear points of convergence and divergence between these nations, this chapter provides a persuasive pathway for future research to discuss potential explanations for social license in terms of culture, development, and equality. Senior executives and other privileged individuals can abuse their positions to commit financial crime as white-collar offenders when they face threats to their personal finances or when the business struggles © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024 P. Gottschalk and C. Hamerton, Corporate Social License, https://doi.org/10.1007/978-3-031-45079-2_13

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financially and faces the threat of bankruptcy. Offender motives, opportunities, and willingness for deviant behavior can be explained by the emerging theory of convenience. The empirical study presented in this paper links respondents’ self-reported extent of understanding of the white-collar crime phenomenon to propositions in convenience theory. Business students in India and law students in Iran indicate somewhat greater understanding in terms of making sense of white-collar crime compared to business students in Norway and liberal arts students in the United States. It might be understandable and thus possible to make sense of top executives and other privileged individuals abusing their positions to commit financial crime when they have problems with their personal finances. It might also be understandable that top executives and other privileged individuals abuse their positions to commit financial crime when the business struggles financially and faces the threat of bankruptcy. A potential explanation for the extent of understandability can be found in the fourteen propositions in convenience theory (Gottschalk, 2022). Convenience theory is an emerging theoretical perspective to explain the phenomenon of white-collar crime where convenience was first introduced as a core concept by Gottschalk (2017). Recently, the theory has been reviewed (e.g., Chan & Gibbs, 2020; Hansen, 2020; Oka, 2021; Vasiu, 2021; Vasiu & Podgor, 2019) and applied by several scholars such as Asting and Gottschalk (2022), Braaten and Vaughn (2021), Dearden and Gottschalk (2020), Desmond et al. (2022), Qu (2021), Stadler and Gottschalk (2022), and Sterri and Borge (2022). A combination of motive, opportunity, and willingness determine the extent of white-collar crime convenience as illustrated in the structural model in Fig. 13.1. In the financial motive dimension, profit might be a goal in itself or an enabler to exploit possibilities and to avoid threats. Possibilities and threats exist both for individual members of the organization as well as for the organization as a whole. It is convenient to exploit possibilities and to avoid threats by illegitimate financial means (Gottschalk, 2022). In the organizational opportunity dimension, convenience can exist both to commit white-collar crime and to conceal crime. Offenders have high social status in privileged positions, and they have legitimate access

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GREED POSSIBILITIES GOAL MOTIVE STRAIN THREATS BANKRUPTCY STATUS CONVENIENCE

COMMIT ACCESS OPPORTUNITY

DECAY CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS

JUSTIFICATION INNOCENCE NEUTRALIZATION

Fig. 13.1

Structural model of convenience theory

to crime resources. Disorganized institutional deterioration causes decay, lack of oversight and guardianship cause chaos, while criminal market structures cause collapse (Gottschalk, 2022). The personal willingness for deviant behavior focuses on offender choice and perceived innocence. The choice of crime can be caused by deviant identity, rational consideration, or learning from others. Justification and neutralization cause the perceived innocence at crime. Identity, rationality, learning, justification, and neutralization all contribute to making white-collar crime action a convenient behavior for offenders (Gottschalk, 2022).

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This chapter addresses the following research question: What determinants of sense-making of white-collar crime can be identified based on propositions in convenience theory? The empirical study presented in this chapter links respondents’ self-reported extent of understanding of the white-collar crime phenomenon to propositions as potential determinants in convenience theory. Survey research was conducted among students in India, Norway, Iran, and the United States. The chapter presents survey research in each country before a comparison of the research results.

Survey Research in India The students at a business school in India pursuing their master’s degree in business administration (MBA) were chosen in survey research to respond to white-collar crime sense-making by application of convenience theory. These students were going to be future employees, managers, and entrepreneurs where they might take on roles of offenders, detectors, investigators, or controllers related to the prevention and detection of financial crime by white-collar offenders. They were chosen for survey research because of their future career paths as well as their current theoretical knowledge of financial crime and offenders. Before the survey was conducted, the MBA students had gone through a few lecture sessions on financial crime offending. The survey was conducted through a google form shared with the students. The survey instrument is listed in Tables 13.1 and 13.2. The extent of crime seriousness was measured by two statements as listed in Table 13.1. The first statement addresses the motive of solving personal economic problems by financial crime, while the second statement addresses the motive of solving corporate economic problems by financial crime. The measurement of crime seriousness occurs by application of the term understandability that reflects the extent to which white-collar crime makes sense to the respondent. Making sense implies a number of factors that influence understandability. First, the knowledge aspect is concerned with insights into law violations. Next, the sense-making implies that the respondent is able to understand the causality of crime that is an

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understanding of why crime is committed. The term understandable refers to the respondent’s extent of agreeing that an offender might be understood, that it makes sense, and that the offense might be explainable given the described situation of threat. Furthermore, understanding reflects comprehension, awareness, insight, and judgment. An understandable act is not necessarily acceptable or justifiable in the meaning that the situation might justify wrongdoing or even make the offender entitled to such wrongdoing. Yet the offense can be recognizable, explainable, and even tolerable. Tolerance reflects the extent to which an act is permissive and excusable. To tolerate is to endure someone or something unpleasant or disliked. The threat situation provides a causal explanation for wrongdoing that the survey respondent might find trustworthy. By greater extent of understandability of crime, the respondent is thus interpreted to indicate that crime is perceived as less serious. The scale in Table 13.1 was rated from 1 (completely disagree) to 7 (completely agree). Variation in understandability and thus perceived seriousness by tolerance for both occupational crime (understandable 1) and corporate crime (understandable 2) is predicted by items listed in Table 13.2. Those items represent propositions in convenience theory. There are a total of 14 propositions that cover motive, opportunity, and willingness. The propositions make sense of events that might be confusing, difficult to comprehend, or poorly explained by mainstream sources of information. While the traditional explanation for financial crime in the elite is need and greed, the respondent was here asked about the threat of personal or Table 13.1

Measurement instrument for understandability of wrongdoing Disagree agree To what extent do you disagree or agree with these statements? UNDERSTANDABLE 1 PERSONAL THREAT It is understandable that top executives and other privileged individuals abuse their positions to commit financial crime when they have problems with their personal finances UNDERSTANDABLE 2 CORPORATE THREAT It is understandable that top executives and other privileged individuals abuse their positions to commit financial crime when the business struggles financially and faces the threat of bankruptcy

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Table 13.2

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Measurement instrument for convenience propositions

To what extent do you disagree or agree with these statements? POSSIBILITIES: INDIVIDUAL 1 GREED Chief executives and others in privileged positions can benefit from financial crime at work to achieve their personal goals POSSIBILITIES: CORPORATE 1 GOAL Financial crime by top executives and others in privileged positions can help organizations achieve their business goals THREATS: INDIVIDUAL 2 STRAIN Chief executives and others in privileged positions can benefit from financial crime at work to avoid personal bankruptcy THREATS: CORPORATE 2 BANKRUPTCY Financial crime by top executives and others in privileged positions can help organizations avoid bankruptcy COMMIT: STATUS Persons in top positions have the opportunity to commit financial crime at work because of their status COMMIT: ACCESS Persons in top positions have the opportunity to commit financial crime at work because of their access to resources CONCEAL: DECAY Persons in top positions have the opportunity to conceal financial crime at work where there is institutional deterioration CONCEAL: CHAOS Persons in top positions have the opportunity to conceal financial crime at work where there is lack of oversight and control CONCEAL: COLLAPSE Persons in top positions have the opportunity to conceal financial crime at work where the corporate environment has criminal market structures CHOICE: IDENTITY Top executives and others in privileged positions might be willing to commit financial crime at work because they identify too strongly with the business CHOICE: RATIONALITY Top executives and others in privileged positions might be willing to commit financial crime at work because they make a rational assessment CHOICE: LEARNING Top executives and others in privileged positions might be willing to commit financial crime at work when they learn criminality from others

Disagree agree 12345 67 12345 67 12345 67 12345 67 12345 67 12345 67 12345 67 12345 67 12345 67

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(continued)

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Table 13.2

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(continued)

To what extent do you disagree or agree with these statements? INNOCENCE: JUSTIFICATION Top executives and others in privileged positions might be willing to commit financial crime at work because they justify their actions INNOCENCE: NEUTRALIZATION Top executives and others in privileged positions might be willing to commit financial crime at work because they get rid of guilt

Disagree agree 12345 67

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corporate bankruptcy as an understandable explanation of wrongdoing based on a potential of 14 convenience factors. The motive can be individual or corporate, and the motive can be possibilities or threats. The opportunity can be to commit crime and to conceal crime. To commit crime is more convenient with higher offender status and easier access to resources to commit wrongdoing. To conceal crime is more convenient when there is institutional deterioration, lack of control, oversight, and guardianship, as well as criminal market structures. The willingness to commit crime can be based on choice or innocence. Choice can derive from deviant identity, for example by identifying too strongly with the business. Choice can also derive from a perception of advantages exceeding disadvantages and thus making it rational. Innocence can derive from justification and neutralization, where the latter is the ability to remove any potential guilt feeling (Gottschalk, 2022). Again, the scale in Table 13.2 was rated from 1 (completely disagree) to 7 (completely agree). The survey items in Table 13.2 reflect the 14 issues on the right-hand side in Fig. 13.1. A total of 230 MBA students at the Indian university responded to the questionnaire. The total number of MBA students at the university was 282, where 230 students represent an acceptable response rate of 82%. The average age of the respondents was 25 years with the youngest being 19 years and the oldest being 69 years. There were 137 male respondents (60%) and 93 female respondents (40%). There were 54 students (24%) who had employment, while 176 students (76%) did not yet have employment.

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The Likert scale from 1 to 7 was applied where the middle value of 4 indicates neither disagreement nor agreement. Table 13.3 lists descriptive results where respondents to a varying extent disagreed or agreed to the statements. On average, respondents found it somewhat understandable that top executives and other privileged individuals abuse their positions to commit financial crime when they have problems with their personal finances, with a mean score of 4.83 for question Q15. The personal financial situation can push an individual in this position to commit financial crime. The statement is provided to be appropriate as 58% of the respondents agreed that it is understandable. Similarly, respondents found it somewhat understandable that top executives and other privileged individuals abuse their positions to commit financial crime when the business struggles financially and faces the threat of bankruptcy, with a mean score of 4.89 for question Q16. It is considered that white-collar crime committed by a person in such a position is to save the company from possible bankruptcy, to which 63% agreed that yes, this could also be a reason why they commit financial crime. The percentages of 58% agreeing for occupational crime and 63% agreeing for corporate crime are based on respondents providing a score Table 13.3

Descriptive statistics for responses

#

Convenience theme

Mean

Deviation

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16

Possibilities for individual 1 Greed Possibilities for corporate 1 Goal Threats for individual 2 Strain Threats for corporate 2 Bankruptcy Offender status to commit Access to resources to commit Institutional decay to conceal Lack of oversight to conceal Criminal market to conceal Choice from strong identity Choice from rationality Choice from learning Innocence from justification Innocence from neutralization Understandable individual threat Understandable corporate threat

5.00 4.86 4.11 4.28 5.05 5.30 5.03 5.45 5.20 4.86 4.47 4.70 4.52 4.36 4.83 4.89

1.704 1.724 2.109 1.967 1.835 1.793 1.509 1.554 1.487 1.682 1.655 1.643 1.717 1.673 1.783 1.774

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of 5, 6, or 7. Respondents do on average not seem to make any significant distinction between occupational crime to benefit the individual and corporate crime to benefit the organization. The standard deviation is also almost the same at 1.7 as listed in Table 13.3. As indicated in Table 13.3, the MBA students agreed most strongly with the proposition that persons in top position have the opportunity to commit financial crime at work because of their access to resources, with an average score of 5.30 for Q6. There is least agreement with the proposition that chief executives and others in privileged positions can benefit from financial crime at work to avoid personal bankruptcy, with an average score of 4.11. The same statement for corporate crime based on threats also receives a low score of 4.28. These two scores for threats as motive are somewhat surprising, given that respondents found it understandable. An interpretation of this result could be that while both individual and corporate threats are understandable as motives (4.83 and 4.89); white-collar crime is not very likely to benefit neither individuals nor corporations (4.11 and 4.28). The standard deviation scores in Table 13.3 indicate that the respondents in India disagreed with each other the most regarding whether chief executives and others in privileged positions can benefit from financial crime at work to avoid personal bankruptcy. They agreed the most among themselves regarding whether persons in top positions have the opportunity to conceal financial crime at work where the corporate environment has criminal market structures. Given the above measurements of the dependent variable understandability and the independent variables of 14 convenience propositions, the first research question is: To what extent do convenience propositions as determinants make it understandable that top executives and other privileged individuals abuse their positions to commit financial crime when they have problems with their personal finances? To answer this question, all fourteen convenience propositions were entered into a regression analysis as independent variables while understandability was the dependent variable. The combined effect of all fourteen items resulted in a regression with coefficients of R = 0.612, R-Square = 0.377, and adjusted R-Square = 0.333, which means that the set of fourteen convenience propositions can explain one-third of the

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variation in crime understandability. The relationship between the independent variables and the dependent variable is statistically significant with an F -value 9.184 and a significance