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«SOC 3290 Deviance Lecture 28: Business Crime Back in the 1970's, Ford produced a car called the Pinto with a dangerous flaw: if hit from behind, the ...»

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SOC 3290 Deviance

Lecture 28: Business Crime

Back in the 1970's, Ford produced a car called the Pinto with a dangerous flaw: if hit

from behind, the gas tank would explode. Ford realized this shortly before the car was put into

production, and calculated that it would cost more to remedy the problem on each car than it

would to pay for the inevitable lawsuits injury and death. They put the car into production and

many people suffered unnecessary injury or death. This kind of thing is still going on today (e.g.

Chevy pickups; Goodyear tires).

In effect, such companies, through their executives, perpetrate white-collar deviance (i.e.

deviance carried out by white-collar individuals). This can be divided into: (1) corporate deviance (as above); (2) occupational deviance (carried out as part of an occupation); and (3) governmental deviance. Today we will take a closer look at the first two of these and then try to explain why it is that some people become involved in them.

What is White-Collar Deviance?

Edwin Sutherland (1939; 1949) first defined white-collar deviance as: (1) occupationally related, carried out during the course of an offender’s white-collar occupation; and (2) characterized by relatively respectable, high status persons.

But what distinguishes the commission of white-collar crime from blue-collar or street crime is more than the act itself. It also involves how the act is executed. White-collar offenders are more likely to commit an offense with skill, with sophistication, or, most importantly, with the resources of power, influence or respectability for avoiding detection, prosecution or conviction. Blue collars attempting to commit the same act (e.g. fraud) don’t do so in the same way, and are thus more likely to be arrested, prosecuted or convicted.

But, aside from individuals, Sutherland also had in mind the fact that corporations themselves could be engaged in deviance, and that the sociological nature of this behavior renders absurd any attempt to explain this behavior in psychological terms (e.g. GM couldn’t have an “inferiority complex”).

So, for our purposes, white-collar deviance refers to both occupational and corporate deviance (we use the term “deviance” rather than “crime” because it is broader, including civil as well as criminal violations).

But more importantly, white-collar deviance is unique in that: (1) such deviants tend not to see themselves as such, but maintain a “respectable” self-image - typically through rationalizations (e.g. “borrowing,” “the company can get tax deductions,” “considering how we’re being screwed, everyone cheats on their taxes”) ; (2) their victims often unwittingly cooperate (e.g. not checking up on the facts, not wanting to reveal embarrassing detailsto the public); and (3) society itself is relatively indifferent (e.g. remaining far more outraged at street crime and crimes of the relatively powerless, which are generally sought out, prosecuted and punished more severely).

Corporate Deviance:

The first matter we will address today is the first major category of white-collar deviance:

corporate deviance. Every day people holding positions of responsibility in the corporate world violate laws. Corporate crime is not uncommon, but, with the exception of well-publicized cases, few people are aware of the extent of such crime.

Edwin Sutherland (1949) first brought corporate crime into the academic spotlight, identifying a long list of legal violations among the 70 largest U.S. manufacturing, mining, and mercantile corporations. He found a total of 980 legal decisions made against these companies, averaging 14 per corporation. More recent research has found that these results are not unusual.

A 1984 survey found about 2/3 of the Fortune 500 largest industrial companies had been involved in illegal behavior since the mid-1970's. But perhaps the most extensive study of corporate offending, conducted by Clinard and his colleagues in 1979-80, found that at least 60% of the corporations surveyed had at least one federal action brought against them, and, for this

group, the average was 4.4 cases. He identified 6 main types of illegal corporate behavior:

(1) Administrative violations, such as noncompliance with an order from a court or government agency;

(2) Environmental violations such as air/water pollution;

(3) Financial violations, such as bribery, tax violations, and accounting malpractices;

(4) Labour violations, involving employment discrimination, occupational health and safety hazards, and unfair labour practices;

(5) Manufacturing violations, such as violations of consumer product safety laws;

(6) Unfair trade practices, involving various abuses of competition such as restraint of trade, price fixing, and false advertizing.

In Canada, focusing on violations of the old Combines Act, Goff and Reasons (1978) reported a total of 157 decisions between 1952-72 against the largest 50 Canadian corporations (3 per corporation). All told, such studies demonstrate the wide extent of corporate offending, and reveal that individuals in the middle and upper socio-economic classes - contrary to popular stereotypes, quite frequently engage in illegal behavior.

What causes such crime? We cannot look to poverty or individual pathology. Rather, we must look at the context in which such crimes occur: the corporation, along with the internal and external factors affect it and its employees.

Beginning with the external factors influencing corporations, we must be aware that any organization both affects, and is affected by its environment. Beginning with a macro perspective, we could first look at the essential features of our capitalist economy with its goals of maximizing profitability and minimizing costs. It could be argued that this leads to unsafe products, environmental pollution, employee and consumer deception, and unsafe working conditions. Simultaneously, it could be argued that the making and enforcement of laws against corporate crime reflect the interests of the economic/political elite, leading to weak legislation and lax enforcement. However, to be fair, these problems are not restricted to capitalist countries, as many of the former communist societies had terrible industrial safety and pollution problems, and widespread corruption. Thus, the capitalist system alone is insufficient to explain corporate crime.

Competition is another precipitating factor in corporate crime. For example, the notorious example of Ford in the 1970's, facing stiff competition from imports, rushing the Pinto into production and later discovering that it would explode on impact. Realizing it would be cheaper to settle the resulting lawsuits than to recall the cars, it decided not to recall the vehicles resulting in numerous deaths and injuries. This shows how competition can sometimes motivate corporations to succeed at any cost. Indeed, in another example, a survey of 3600 companies in 69 countries found that many considered corrupt practices such as bribery inevitable -if not acceptable - ways to get things done when facing the possibility of losing contracts to competitors (40% admitted having done so).

Indeed, when we consider that industry culture promotes competition as a means of attaining corporate goals, but the market structure limits the opportunity for all to achieve success, this discrepancy or “strain” increases frustration, and the possibility of corporate corruption through the use of illegal means. Such “innovation”- to use Merton’s term - occurs both internally and external to the corporation. For example, externally it may involve bribery or illegal cost-benefit analyses as above. Internally, it may involve pressure from management on staff to meet production and sales quotas at all costs.

All the same, competition is not the full answer either. While competition exists in every industry, some are more crime-prone than others - even companies within the same industry differ. We must ask, then, what it is about particular industries and particular firms that produces a higher rate of corporate crime than others?

There are certain external factors that vary among firms and industries. For example, companies may have a variety of goals, and these may vary between companies. For example, while profits are the primary goal, some may strive to maximize revenue, earnings per share, market share, growth, production quotas - or simply to survive. Moreover, the external environment contains a myriad of political, socio-cultural, economic, physical and technological factors, including, most importantly, other organizations. These factors produce a high - and often differential - degree of uncertainty. In order to meet corporate goals in a more uncertain environment, some may be more likely to reduce that uncertainty through illegal behavior (e.g.

price-fixing with other companies). As environmental uncertainty increases, so does the probability of illegal behavior to achieve goals.

Another external factor here is market structure. Using the price-fixing example, the more firms in a particular market, the harder it will be to coordinate a collusion to maintain prices.

Instead, in industries with many small, highly competitive firms, crimes will tend to coalesce around ways to improve the firm’s competitive edge (e.g. fraud, false advertizing, and industrial espionage). Thus, market structure affects the type of illegal corporate activities engaged in.

The final external factor to consider relates opportunity to the type of crime. For example, oil and chemical companies are more likely to pollute the environment, while those that are labour intensive - relying more on workers than specialized equipment - are more likely to violate labour laws. As well, some industries more than others may find themselves the targets of various regulatory agencies (e.g. the pharmaceutical, auto, chemical and petroleum industries are more regulated due to the potential harmfulness of their products, and have higher crime rates than others as a result).

Thus, companies are goal oriented, and many external factors create uncertainty which they may attempt to minimize through violating regulations. Still, it is important to recognize that differences in the rate of violation exist among companies in the same industry, and some firms are more deviant than others. Thus, we must also consider what characteristics may help distinguish criminal from non-criminal firms. This necessitates a consideration of influential factors internal to companies themselves.

The modern corporation is a large, diffuse, hierarchical system oriented toward goal attainment in an uncertain environment. Employees are one internal resource utilized to this end, and managed by the corporation. However, the internal structure of the corporation may make it more difficult in some cases to control illegal behavior. For example, sheer size may be conducive to corrupt behavior. When companies grow large with a variety of product lines and geographically diverse facilities, employees become more difficult to manage and control.

Deviant activities may more easily remain hidden in a complex structure where lines of authority become decentralized. Visibility is decreased and responsibility diffused. It is not only easier to withhold information in such a structure, it is easier for senior management to distance themselves from wrongdoing (e.g. Union Carbide shifting responsibility to the subsidiary in the Bhopal disaster in India).

Finally, to complete our understanding of corporate crime, we must consider individual level factors. Control theorists, for example, have argued that people with weak ties to the norms of conventional society are more likely to deviate than those who are emotionally attached to conventional others, committed to conventional goals/means, involved in conventional activities, and believe in the validity of society’s laws. At first glance, this would seem problematic as corporate executives would appear to be strongly connected to conventional society. However, if we look at the subculture of many corporations, we may argue that corporate offenders may be more tightly bonded to the culture of the organization than they are to the larger society. If these goals and ties are in conflict with those of society as a whole, this may help explain individual corporate criminals.

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