Opinion: what makes some large corporations breeding grounds for dishonesty, fraud and other types of bad behaviour?

Volkswagen is back in the news. It has just reached a settlement in a major lawsuit related to its use of a "defeat device" that made its diesel autos appealing to the US market by appearing to do the impossible and achieving a combination of high mileage, good performance and low emissions. Over a period of years, it became clear that Volkswagen had achieved the impossible by applying a time-honoured strategy – they cheated. 

Volkswagen engineers who were given the impossible task of meeting a combination of performance and pollution targets found a way to do this by devising software that caused the car to produce low emissions while being tested, but to pollute much more (but perform better) while operating on the road.

What is most striking about this story is the breadth and scope of the alleged fraud. This practice of using software to cheat on emissions tests spanned a number of years and involved large numbers of engineers and executives in multiple companies. Initial reports from Volkswagen blamed this on a handful of rogue engineers, which is almost the universal responses of corporations caught misbehaving, but it is clear that this affair goes much deeper. 

From RTÉ Radio One's Morning Ireland, Greg Archer, clean vehicles manager of lobby group Transport and Environment, and Donal Byrne, RTE's online motoring editor, discusses the Volkswagen case 

Six Volkswagen executives have been charged in the US, and one of them, an executive working in the US, is already in jail. It has been suggested that the only thing keeping the remaining five executives, all of whom are in Germany, out of jail is the Germany’s unwillingness to extradite them.

Volkswagen is not alone in terms of its involvement in large-scale frauds and dishonest behavior. Many companies ranging including Enron, WorldCom, Arthur Andersen and Tyco International have been tarnished, if not destroyed by large-scale fraud and dishonesty. These frauds are hardly a new phenomenon: large scale frauds ranging from the sale of the Roman Empire in antiquity to the original Ponzi scheme and the fraudulent sale of the Eiffel Tower have been well documented.

When fraud and dishonest behaviour is sufficiently widespread and long lasting, it becomes progressively harder to blame individuals, and progressively more likely that there is a systematic cause. What, then, makes some large corporations breeding grounds for dishonesty, fraud and other types of bad behaviour? 

Some researchers use the term "criminogenic culture" to describe organisations that encourage rule-breaking and turn a blind eye to infractions if they benefit the firm

One leading explanation involves the concept of corporate culture, the set of shared attitudes, values, beliefs and standard that help to define an organisation. All organisations have cultures, and these are often both fairly similar from organisation to organisation and fairly benign. However, some organisations have strong cultures that seem to pull their members into patterns of misbehaviour, or at least to tolerate these behaviours. 

For example, Wells Fargo had what was described as a "pressure-cooker sales culture", characterised by relentless pressure to boost sales and show larger profits. This culture is cited as one of the key reasons for the widespread practice of opening accounts in customers’ names without their permission and persuading customers to take on loans, debt and unnecessary credit lines

Similar cultures have been reported at numerous other banks and financial companies, and are thought to encourage unethical behaviour among employees. Some researchers use the term "criminogenic culture" to describe organisational cultures that encourage rule-breaking and turn a blind eye to infractions if they seem to benefit the firm.

Wells Fargo: "pressure-cooker sales culture". Photo: iStock

There are two schools of thought about how criminogenic cultures might encourage misbehaviour in organisations, particularly white-collar crime. First, it is possible that some types of firms attract people who are ethically challenged, and that the culture is a sign of the problem rather than the cause. The more likely possibility is that firms encourage their members to engage in dishonest behaviours. 

In particular, there are a number of aspects of an organisation’s culture that could be a worrying sign that the corporation might have a corrupting effect on its members: (i) an emphasis on ends over means, (ii) internal competitiveness, (iii) beliefs about "how things are done" and (iv) a pattern of strong attachment to the organisation.

Cases like Wells Fargo and Volkswagen have something striking in common – i.e., a strong message that unrealistic goals must be accomplished without much apparent concern for how those goals are met. An executive who announces very difficult goals and says or leads subordinates to believe that it does not matter how those goals are accomplished is practically begging employees to cheat. 

In some organisations, a high level of commitment is that final ingredient needed to perfect a recipe for short-term gain and long-term disaster 

The very fact that seemingly impossible goals are being achieved should probably be taken as an indication that cheating is probably involved, but as victims of numerous frauds and Ponzi schemes can attest, high returns and dazzling profits can turn even sophisticated investors into easy marks

The Volkswagen case has personal relevance to me. I was so impressed by the company’s ability to produce a high-performing, low-mileage, low-polluting car that I was in the process of placing an order in for one when the "defeat device" story broke.

A second feature of organisational cultures that have the potential to corrupt is internal competitiveness. In a "dog-eat-dog" or "pressure-cooker" environment, internal competition for advancement, resources and the like will create a lot of temptation to cut corners. This is especially dangerous if people believe that the organisation tolerates or even encourages dishonest behaviour. Individuals are often willing and able to resist many types of temptation, but if they believe that "the way things are done" involves bending rules or other forms of dishonest behaviour, they are much more likely to go along with these behaviours. 

"It is possible that some types of firms attract people who are ethically challenged"

The most counter-intuitive factor is that organisations that promote strong levels of identification and loyalty may be at risk for having a corrosive effect on their members. One of the distinctions sometime made in studies of white-collar crime is stealing from the organisation versus stealing for the organisation. One of the reasons large-scale fraud is possible is that many of the participants engage in behaviours that they might find personally questionable, but that they believe are necessary for the survival or benefit of the organisation. 

To be sure, many people engage in dishonest behaviour in the workplace for purely selfish ends, such as a desire for advancement or to keep one’s job. Large-scale theft and fraud requires a substantial cadre of employees who will be willing to do things they know to be wrong for the apparent benefit of the organisation, and this is less likely if employees are not all that attached to their companies. 

Organisations usually work hard to build commitment and attachment among their employees, but perhaps they should be careful what they wish for. In some organisations, a high level of commitment is that final ingredient needed to perfect a recipe for short-term gain and long-term disaster – a criminogenic organisational culture.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ