Why Managers Fail to Do the Right Thing : an Empirical Study of Unethical

We combine prior research on ethical decision-making in organizations with a rational choice theory of corporate crime from criminology to develop a model of corporate offending that is tested with a sample of U.S. managers. Despite demands for increased sanctioning of corporate offenders, we find that the threat of legal action does not directly affect the likelihood of misconduct. Managers’ evaluations of the ethics of the act, measured using a multidimensional ethics scale, have a significant effect, as do outcome expectancies that result from being associated with the misconduct but not facing formal sanctions. The threat of formal sanctions appears to operate indirectly, influencing ethical evaluations and outcome expectancies. Obedience to authority also affects illegal intentions, with managers reporting higher prospective offending when they are ordered to engage in misconduct by a supervisor. Why do managers engage in unethical and illegal behavior? What are likely to be effective remedies to this misconduct? One response to the recent wave of corporate scandals has been substantial custodial sentences for executives from firms such as Enron, WorldCom, ImClone, Adelphia, and Tyco (Sorkin and Bayot, 2005). Some have questioned whether sentences as long as 25 years might be disproportionate to the crime (Economist 2004a). However, even with highly punitive sentencing of corporate offenders, there may be justifiable skepticism of its effectiveness in deterring future corporate misconduct. Despite frequent demands for stronger regulations and increased sentencing, the study reported here suggests that the threat of formal sanctions may be ineffective, at least in isolation. Further, there might also be a role for ethics, though policymakers give this potentially important factor far less attention and researchers have only rarely considered the two in combination. In contrast, this paper examines the role of both legal and moral constraints on corporate crime. We view the misconduct evident in recent business scandals as a failure of moral and legal prohibitions. We draw on criminology as well as the management literature to develop and test a model of corporate offending, identifying how moral evaluations of the act, formal sanctions and other possible outcomes (notably informal sanctions, such as the loss of respect of family and friends) serve to inhibit a manager from engaging in illegal and unethical conduct. In the next section, we turn to criminology, where research on crime by firms and their managers has largely gone unnoticed within management, including a rational choice theory of corporate crime that builds on a deterrence framework. We relate this to the empirical research and conceptual models of (un)ethical decision making in organizations and build on the two literatures to propose our model and formulate hypotheses that are tested with a sample of managers. We conclude with a discussion of our findings, including their implications for managers and public policy.