Consequences of organizational misconduct: Too much and too little punishment

Misconduct, malfeasance, and corruption are all terms that describe behaviors that are against common norms and in many cases also illegal. Misconduct can be defined as “behavior in or by an organization that a social control agent judges to transgress a line separating right from wrong” (Greve, Palmer, and Pozner 2010: 56). The definition includes a social control agent, an actor with a mandate to label actions as misconduct and punish them. Accordingly, societal reactions against organizations that engage in misconduct are expected from the state and possibly also from other actors such as exchange partners, professional organizations, individual consumers, or workers. This expectation is so strong that one might wonder whether analysis of misconduct punishment is too obvious to even pursue. Are any surprises possible? In fact, research so far has uncovered a few surprises that suggest a strong need to examine the phenomenon further. First, the extent of punishment varies widely and includes cases of non-punishment. Second, the actors who do the punishment vary and include actors who should be indifferent as they are not harmed by the wrongdoing. Third, the range of organizations that get punished is broad and, as a result of stigmatization, includes organizations that did not engage in the original misconduct. Because punishment can be unrelated to misconduct, we often use the term “punished organization” rather than wrongdoer. These surprises will remain just that – surprises – until we reach a richer understanding of the consequences of misconduct based on theory and evidence. We are some distance away from this goal, and so the aim of this chapter is not to provide answers, but instead to give a map of the task ahead and a description of the early evidence. For convenience, we divide the treatment into discussions of (1) why social control agents punish, (2) how social control agents punish, (3) who are punished by social control agents, and (4) how organizations react to punishments. These issues are interrelated but still best discussed separately. We focus on punishment by actors other than the state to avoid overlap with the criminal justice literature. To understand the consequences of misconduct, four factors with obvious effects are the nature of the misconduct, the organization responsible for it, the actors observing and reacting to it, and the conditions of the environment of these actors.