Organizational Crime and Illegalities

Neal Shover. 21st Century Criminology: A Reference Handbook. Editor: J Mitchell Miller. 2009. Sage Publications.

Organizational crime is the violation of criminal statutes committed in pursuit of the goals of legitimate organizations, organizational subunits, or work groups. Individuals and groups commit organizational crime when they transgress not primarily from selfinterests but instead in pursuit of organizational ones. Reasons for interest in distinguishing and examining organizational crime begin with the fact that when individuals commit criminal acts, they do so while at work, in their employment roles. In the industrialized and postindustrialized world, overwhelmingly these are situated in organizations, whether they be charitable organizations, universities, religious organizations, military units, or other legitimate organizations. In contrast to crime, organizational illegalities are violations of state-enacted and state-enforced rules that do not rise to the level of criminal offenses. They consist primarily of violation of administrative or regulatory rules of the kind that are ubiquitous in modern states. They are regarded as civil violations and typically are met with warnings or minor civil fines. Diverse forms of rule breaking, from the felonious to the unethical, however, almost certainly have their origins in similar organizational contexts and conditions. Industries and organizations where there are high levels of crime almost certainly are places where illegalities are more common also. Historically, the study of organizational crime and illegalities has been seen as part of the effort to understand and explain white-collar crime.

One of the principal rationales for distinguishing organizational crime from other types of crime is the heavy financial, physical, and emotional toll it exacts from victims. In marked contrast to street crimes, the cost and impact of some organizational crimes can range into millions of dollars and victimize entire nations. Another reason for isolating organizational crime for study is the fact that organizational properties and dynamics can be autonomous and significant causes of it and the response it elicits. Characteristic features of organizations, from authority differentials and an emphasis on loyalty to task specialization and the situational importance of secrecy, can affect the odds of crime commission. By itself, hierarchy, which essentially provides that some will control the work activities of others, may do so. Organizational arrangements can obscure decision-making participation and dynamics and thereby increase the difficulties of oversight. They also can diffuse responsibility for misconduct, which may facilitate individual willingness to participate. The potential importance of organizational conditions as causes of crime is most obvious where there are long-standing patterns of criminal violation in organizations. In these circumstances, the pathologies of individuals fail as explanation.

The causes of organizational crime need not be confined to the organizations’ internal worlds, however; the nature and dynamics of organizational environments also affect the odds of crime. This is exemplified by industries where there is evidence of significant criminality over many years or where there are recurring cycles of crime and prosecution. The category of organizational crime excludes crime committed in the context and in pursuit of goals of organizations in which crime is the principal means of livelihood and collective success. The crimes of international drug smugglers and other syndicated criminals, for example, are organized, but they are not organizational crime.

Corporate crime is a subtype of organizational crime that occurs in profit-seeking organizations. It is distinguished from the parent category because of belief that criminogenesis is unusually characteristic of corporations and their environments. The emphasis in for-profit organizations, for example, of unalloyed economic calculation coupled with possibly distinctive structural and cultural features are examples of this.

The pages that follow describe sources of data and methods used in studies of organizational crime. They show that both aggregate rates of organizational crime and criminal participation by individual organizations vary substantially. Risk and protective factors that contribute to this variation are summarized and examined, and rational choice theory as an organizing framework for them is demonstrated. This is followed by description of what is known about state and private responses to organizational crime and illegalities. The chapter concludes by examining effects of economic globalization on competition, oversight, and the dominant regulatory approach to illegalities and organizational crime.

Counting and Mapping Organizational Crimes

Few sources of information or data on crime categorize and report information specifically on organizational crimes. Most reporting categories instead are based on and reflect statutory crime definitions. Fraud and antitrust offenses are prime examples. This means that investigators interested in organizational crime must construct a picture inferentially, however tentative, of the problem and key aspects of it. Many, if not most, investigators are more interested in corporate crime specifically, instead of organizational crime generally, but the two usually are treated as coextensive. Studies of corporate crime make up by far the largest part of what is known about organizational crime.

Official data on organizational crime and criminals pale in quality, comprehensiveness, and analytic utility beside data on street crime. Through its Bureau of Justice Statistics, the U.S. Department of Justice annually issues a torrent of information on robbers, burglars, drug offenders, and other street criminals. It publishes next to nothing on organizational or corporate crime. Information on illegalities is more bountiful and accessible; annual reports by federal and state regulatory agencies detail the number and types of regulatory violations recorded in the preceding year. Increasingly, these reports on illegalities are available on the Internet. The net result of shortcomings in data is inability to measure with comprehensiveness or confidence the volume and distribution of organizational crime.

Past research on organizational crime includes a high proportion of case studies. Journalists and academics alike have provided detailed descriptions and post-mortem analyses of some of the most egregious, destructive, and costly organizational crimes. The crimes of Enron Corporation, for example, were the subject of several detailed print media reports, insider accounts, and cinematic productions in the years following its collapse. Industries in which notable crimes or long-term or cyclical patterns of criminality occur have been examined as well. What is often obscured through attention to newsworthy organizational crimes are the mundane organizations and crimes that more typically draw attention from regulators, police, and prosecutors. Case studies are useful, however, for the insight they provide on organizational and interpersonal dynamics that can result in crime. Some shed light also on the dynamics of denial and cover-up.

Explaining Organizational Crime

Rates of white-collar crime vary temporally, spatially, and across organizations. The sources of this variation are matters of considerable theoretical agreement. As an organizing framework, rational choice theory or approaches that are logically compatible with it predominate. Rational choice theory accommodates logically and integrates in a straightforward fashion a range of other theoretical approaches to organizational crime. When crime is viewed as a product of choice, crime results from a decisionmaking process in which actors balance diverse utilities with their respective potential risks and rewards. The latter are diverse, but where organizational personnel are concerned they include everything from increased organizational profit or market share to increased personal income, while the former includes loss of reputation or income and formal penalties imposed by the state. This in no way denies that contextually remote conditions may contribute to crime occurrence but assumes instead that they are important primarily because of their effects on situationally specific decision making. Discretion resides with the individual and group, which chooses whether or not to transgress. With its focus on decision making, rational choice theory provides a way of understanding how both the world beyond organizations and their internal conditions and dynamics shape the odds of crime.

Aggregate Level

Rational choice theory highlights two principal causes of variation in the aggregate rate of organizational crime: the volume of criminal opportunities, and the size of the pool of tempted individuals and predisposed organizations prepared to exploit them. Organizational criminal opportunities are objectively given situations or conditions encountered by organizational personnel that offer attractive potential for furthering organizational objectives by criminal means. Understandably, many cluster in the workplace. In geographic areas, at times, or in industries where there are abundant opportunities for organizational crime, correspondingly high rates of it can be expected. Where there is a paucity of opportunities, the rate of organizational crime contracts.

Changes in the forms and supply of organizational criminal opportunities have been pronounced in the halfcentury since World War II. The onset and developmental pace of the financial services revolution, new technologies for information sharing and financial transactions, the globalization of economic markets, and relationships and state provision of tax incentives and subsidies to businesses vary from one nation to another, but these changes have affected the supply of criminal opportunities around the globe. In 2002 alone, U.S. corporations received $125 billion in government subsidies.

The size of the pool of predisposed organizations in which individuals are at increased odds of crime commission is a function of (a) economic trends and the level of uncertainty in critical organizational markets; (b) competition over resources and markets; (c) cultures of noncompliance that gain acceptance and legitimacy in geographically circumscribed regions, in specific industries, or in historical eras; and (d) prevailing estimates of the certainty and severity of potential aversive consequences. Fluctuation in the business cycle has been linked repeatedly to changes in the size of the pool of white-collar offenders. Economic downturns depress both income and prospects for the future, which increases fear and competition. As larger numbers of citizens and organizations are pushed closer to insolvency, desperation escalates, which can cause respectable organizational employees to consider behavioral options they normally would find unacceptable. This may be true particularly for entrepreneurs and small businesses operating near the margin of insolvency.

Fluctuations of the business cycle are important also because they complicate and make more uncertain predictions of market trends. To acquire financing, personnel, raw materials, and other resources needed for production, organizations must participate in a variety of markets. Conditions in any combination of these markets may range from financially depressed or unsettled to strong and predictable. When the former is the case, market uncertainty increases. For officers and managers of business firms, this complicates planning, further escalates anxiety, and pushes an increasing proportion toward desperation and crime.

Organizations of all kinds compete with other organizations over the prices charged for their products and also in credit and labor markets. In competitive worlds, progress is assessed by comparison with peers, and inevitably there are winners and losers. Desire to be the former is fueled in part by fear of becoming the latter. Competition need not be economic, however. Establishing or maintaining respect from peers for exceptional achievement is a priority for many, but humans compete for attention from superiors, for plum assignments, and for possible career advancement. Competition presumably operates also in the realm of nongovernmental organizations (NGOs). Charitable organizations, for example, must compete annually for funds and other resources to meet their operating budgets and philanthropic objectives. The pervasive insecurity generated in competitive environments provides powerful motivational pushes toward misconduct. By elevating and rewarding success above all else, they provide both characteristic understandings and justifications for misconduct. In these worlds, normative restraints are transformed into challenges to be circumvented or used to advantage.

As cultures of noncompliance gain strength and acceptance, they increase the supply of potential offenders by providing to organizational personnel perspectives and justifications that conflict with ethical maxims. Cultures of noncompliance are important because they make available to individuals and groups interactionally permissible rhetorical constructions of illicit conduct. These techniques of neutralization excuse, justify, or in other ways facilitate crime by blunting the moral force of the law and neutralizing the guilt of criminal participation. Techniques of neutralization need not be a determinant of decision making in all organizations, however. Techniques of restraint are linguistic constructions of prospective behaviors that dampen the proportion of firms where crime occurs by shaping preferences, perceived options, and the odds of criminal choice. Techniques of restraint are publicly spoken admonitions of the like that “virtue is its own reward,” “honesty is the best policy,” and “protection of the environment is part of our job.” The proportionate mix of techniques of neutralization and techniques of restraint is the key determinant of the dominant culture of industries, regions, time periods, and individual organizations.

Prevailing estimates of the credibility of oversight occupy a prominent place in rational choice theory as partial explanation for variation in the aggregate rate of crime. Just as uncertainty rooted in economic conditions, market fluctuations, and cultural support for criminal actions increase the supply of predisposed offenders, weak or inconsistent oversight does the same. This is because the level of commitment to and resources invested in rule enforcement by the state shapes collectively held notions about the legitimacy and credibility of oversight. Oversight by the state and other organizations can take the form of direct observation or impersonal monitoring via periodic audits, television cameras, or computer programs. It can also include policies and programs supported by professional associations and trade groups. When it is widely believed that oversight is unwarranted or too costly, when the odds of detection and sanctioning for criminal conduct are thought to be minimal, or when penalties threatened by the law or by others are dismissed as inconsequential, the pool of individuals and organizations predisposed to offend grows.

Organization Level

There is little doubt that the incidence of crime and illegalities varies across organizations or that some transgress repeatedly while others do so infrequently or never. Their variable structure, culture, and dynamics are major reasons for this variation. Four aspects of their internal worlds are significant for their potential effects on the odds of crime by executives, managers, or employees of legitimate organizations: performance pressure, doubt about the credibility of oversight, organizational cultures that excuse or permit commission of infraction, and signaling behavior by executives and managers that law obeisance is not an organizational priority. These as well as other organizational conditions present individuals with different understandings and beliefs about the likely consequences of their decisions. By constraining the calculus of decision making in organizational context, variation in these conditions can cause decision makers to believe alternatively that one runs grave risks in choosing crime or that the risks are improbable.

No cause of variation in organizational compliance is asserted with more confidence than belief that pressure and strain produced by the need to meet acceptable levels of performance increase the probability of crime. When the organizational employer is not doing well, and pressure is on to do better, it can embolden or make desperate decision makers and cause them to make choices recklessly. In market-based economies, the need for firms to maintain profitability is of paramount importance; declining income and falling profits are a source of pressure for improved performance. For-profit nursing homes, for example, are significantly more likely than nonprofit ones to deliver substandard care and break the law. Apparently, top-down pressure to meet the bottom line creates incentive to cut corners in patient treatment, to leave necessary maintenance unfinished, and to look the other way in the face of potentially hazardous working conditions. For employees, the source of performance pressure is a combination of organizational and personal determination to succeed.

Largely because of their effects on organizational performance, the dynamics of economic markets and relationships are among the strongest constraints on criminal choice. The relationship between economic conditions and performance pressure, and the supply of potential organizational criminals may be curvilinear, however; severe economic upturns and downturns alike may increase the number of individuals and organizations weighing criminal options. Crime is stimulated during boom times by widespread belief that “everyone is getting rich.” When everyone seems to be doing well, belief that it is foolish to hold back and not engage in the games of the moment finds broad appeal. Many come to believe that to pass up any opportunity is to miss the boat. Those who choose crime may be emboldened by an assumption that a rising economic tide hides their activities and increases their chances of criminal success. Strong and sustained economic growth can also create both a sense of entitlement to the fruits of a thriving economy and belief that “now is the time to strike.”

Performance pressure is not a condition that occurs only in profit-seeking organizations. All organizations must acquire resources sufficient in quality and price to remain viable if not enhance their level of success. University faculty and researchers, for example, are not immune from performance pressure, and scientific misconduct, some of it criminal, is the result. Faced with pressures to produce new knowledge, publish, and gain promotion and tenure, scientists may tread carelessly or injudiciously along the boundary demarcating the unacceptable. The rapid corporatization of universities in recent decades presumably has increased the prevalence of scientific misconduct by administrators and faculty and possibly the prevalence of crime as well.

Nearly as important as performance pressure as a source of crime in organizations are organizational cultures that cause decision makers to emphasize the importance of goal achievement with less emphasis paid to how this is accomplished. The culture of an organization can make social outcasts of those who behave criminally or welcome them as close colleagues and suitable candidates for increased administrative responsibilities. More than two decades of research are the basis of striking agreement on culture as a “social force that controls patterns of organizational behavior by shaping members’ cognitions and perceptions of meanings and realities” (Ott, 1989, p. 69). Variation in organizational culture has been linked to an array of variables, including financial performance, adaptability, and goal effectiveness.

For the specific and narrow purpose of understanding how it affects the odds of criminal choice, organizational culture is the normative beliefs and shared expectations in an organization or organizational unit. It is well established that some organizational arrangements and cultures are more conducive to compliance than others. Just as the dominant culture of industries, regions, or time periods is determined by the proportionate mix of techniques of neutralization and techniques of restraint, the same is true of organizational cultures. An imbalance in the approved use of either constrains the odds of criminal conduct; where techniques of neutralization dominate, the odds of crime increase, and where techniques of restraint dominate, the odds are reduced.

Another cause of organizational variation in crime commission is the stance on criminal conduct communicated by executives and managers. Differentials of authority are inherent in work organizations; superiors and subordinates are unavoidable aspects of their structure and dynamics. Policies and decisions by executives and managers are meant to influence subordinates’ actions in ways that contribute to organizational success. Evidence is clear that in doing so they function also as moral exemplars for peers and subordinates. This signaling behavior by executives, managers, and team leaders communicates to all the degree to which lawful behavior is valued and expected. When they signal to colleagues and employees that misconduct will not be tolerated, the message is not lost. When they fail to insist upon obeisance to law, it signals that compliance is not a priority. The result can be a steady if imperceptible growth of laxness and even indifference about ethics and compliance. If superiors treat in a cavalier fashion the standards of ethical conduct, subordinates will be quick to realize that the risks of misconduct for them are reduced as well. In these circumstances, the proportion of managers and employees who are criminally predisposed or tempted grows.

Responses to Organizational Illegalities and Crime

Regulatory Agencies

The regulatory state took shape in the decades before the dawn of the 20th century and consists of semiautonomous administrative agencies created by legislative bodies to oversee chiefly economic activities by corporate firms. An array of these agencies at all levels of government makes up the first line of oversight of potential organizational criminals. Historically, they are charged with promulgating and enforcing rules for the fair and safe conduct of organizational business in specified areas of activities. To accomplish their legislative charge, agencies employ technical staff to provide expertise, attorneys to draft regulations and pursue penalties in cases of serious or long-standing violations, and inspectors to monitor compliance by organizations. Agencies have considerable discretion in deciding how to exercise oversight and respond to violations.

Criticism of regulatory agencies has focused on their proneness to “capture” by the industries and businesses they are created to regulate. Capture is the tendency of agencies and their personnel over time to adopt the perspectives and agendas of business and to operate in a more cooperative than adversarial fashion in oversight. Decades of research have shown that agencies for the most part are “paper tigers” that spend their time and other resources disproportionately sanctioning small and midsize businesses. Referrals for criminal prosecution are exceedingly rare.

Investigation and Prosecution

In the United States, several federal investigative agencies have responsibility for organizational crimes, but the Federal Bureau of Investigation (FBI) investigates most cases of suspected organizational crime. During 2006, it investigated 490 corporate fraud cases resulting in 171 indictments and 124 convictions of corporate criminals. The Environmental Protection Agency’s Criminal Enforcement Program investigates the most significant and egregious violators of environmental laws that pose a significant threat to human health and the environment. Organizations can be targets of criminal investigation and stand as defendants in cases where culpable individuals cannot be identified or where the likely cost of prosecuting successfully those who are is considered prohibitive.

The technical challenges of detecting, investigating, and prosecuting organizational crime are several. Many crimes go unreported, either because victims are unaware when they fall prey or because they prefer not to make public their misfortune. Officials who are made aware of organizational crimes may lack the expertise needed to investigate them adequately. Routinely, task forces composed of personnel from multiple agencies are required. Identifying culpable individuals and establishing criminal intent can be difficult. These are chief among the reasons prosecutors frequently opt for civil prosecution and the lower standard of proof required to sustain a successful outcome. They are also among the reasons why primary responsibility for oversight rests with regulatory agencies and the regulatory process. Official campaigns against white-collar and organizational criminals are uncommon, rarely result in significant escalation of sanctions, are applied to few organizations, and generally are not sustained for long.

When they screen cases of reported white-collar and organizational crime, prosecutors pay attention particularly to the number of victims, the extent of harm to them, and whether there was evidence of multiple offenses. They carefully weigh local economic conditions and interests and sometimes elect not to pursue aggressively crimes committed by businesses for fear of harming employment and the local economy. Likewise, concern for possible economic repercussions occurs on a grander scale in crimes where massive financial losses caused by organizational crime potentially could destabilize important financial institutions or markets. At every level and stage of the oversight process, the potential economic impacts affect the way options are weighed. The same occurs in other English-speaking nations where judges are permitted broad discretion in sentencing.

Courts and Sentencing

When organizations are sentenced for committing criminal violations, the range of options available to prosecutors and judges differs somewhat from what is available when individuals are sentenced; incarceration, for example, is not an option, since organizations cannot be confined. In other ways, however, the range of options expands and allows for sentences that either cannot be imposed on individuals or would be illegal or unethical. Other sentencing possibilities available for individuals lack a similar option when organizations are defendants, but functionally equivalent ones can be employed; organizations cannot be put to death as individuals can, but their license to do business can be revoked, and the effect of this for all intents and purposes may in some ways be comparable to death. Organizations can be compelled to change their internal structures in ways that would not be applicable when sentencing individuals; the latter cannot be ordered to develop a conscience, but organizations can be compelled to establish internal compliance units. The federal guidelines used when sentencing convicted organizations or officers permit sentencing judges to weigh as an aggravating factor the absence of an effective compliance and ethics program.

In 1991, the U.S. Sentencing Commission promulgated guidelines for sentencing convicted organizational defendants. The guidelines establish fine ranges meant to deter and punish criminal conduct, require full restitution to compensate victims for any harm, disgorge illegal gains, regulate probationary sentences, and implement forfeiture and other potential statutory penalties. The organizational guidelines apply to all felonies and serious misdemeanors committed by organizational defendants, but their fine provisions are applicable primarily to offenses for which pecuniary loss or harm can be more quantified (e.g., fraud, theft, and tax violations). In 1995, a total of 111 organizations were sentenced in U.S. district courts, and fine provisions were applicable to 83 of the defendants.

Between 2002 and 2007, there were 1,236 corporate fraud convictions in U.S. district courts (Shover & Scoggins, in press). Published tallies of organizational offenses are limited primarily to financial offenses and fraud, and they generally do not report on other types of crime. Environmental crime is a notable example. In the years 1995–2006, the number of organizational defendants sentenced annually in the United States fluctuated from a low of 45 (2006) to a high of 304 (in 2000). Given the extremely large number of organizations, these numbers seem minuscule and inconsequential.

As compared with what is known about the characteristics of individual white-collar offenders, the picture of organizational defendants is much less clear. Data on 601 organizations sentenced in U.S. district courts in 1988 and 1989 show that less than 1% were nonprofit organizations. Closely held companies represented 90.7% of sentenced firms, and 8.2% were publicly traded firms. Fraud and antitrust offenses accounted for 57.2% of all offenses, and environmental offenses comprised 9.3% (Shover & Scoggins, in press). Convicted organizational criminals disproportionately are small and midsize business firms. Apart from the question of whether or not this reflects higher levels of crime in smaller firms, studies in both the United States and other nations suggests that they are more likely than larger businesses to be singled out for investigation and prosecution. As compared with the risks and costs of targeting the large and powerful, criminal convictions or settlements are attained most economically by concentrating efforts on firms less likely to mount vigorous or sustained resistance. For organizations convicted and sentenced for crime in 1988 and 1989, “the typical case [was] a fraud that [resulted in] a loss of approximately $30,000” (Shover & Scoggins, in press). These are hardly crimes of the same sort or magnitude as those committed by Enron and other corporate criminals in the past decade, but they almost certainly are more typical of the larger population of organizational crimes; a substantial if undeterminable proportion is unremarkable, if not mundane.

Private Actions: Victims and Informants

As with crime victims generally, citizens and organizations victimized by organizational crime may be unaware of this fact. Because many of these crimes have the look and feel of routine transactions, they may not stand out in victims’ experience. In marked contrast to armed robbery, for example, billing customers for services that were not provided can get lost and remain hidden from victims in lengthy and complex financial statements. Understandably, those unaware of being victimized are in no position to respond to victimization.

The effects of victimization by organizational crime can ripple far beyond its immediate victims to harm others. When organizations dispose of hazardous materials in reckless and criminal fashion, the costs may be increased risk of health problems for innocent parties as well as the financial costs of cleaning up their poisonous legacies. The environmental damage caused by these crimes can make uninhabitable neighborhoods or communities and force the relocation of dozens of families. When victimized by organizational crime, small businesses may be forced into bankruptcy and their employees onto unemployment rolls. Where public bureaucracies are victimized, the larger community of taxpaying citizens may be the ultimate victim. They must pay the fare, for example, when local school districts are charged artificially high prices for products due to price fixing by ostensibly competitive suppliers.

Both individuals and organizations aware that they have been harmed by what they believe are criminal actions by others can pursue civil remedies to recover losses and press for punitive damages. It is impossible to determine from official data on civil litigation how many victims of organizational crime take civil action against organizations on the basis of alleged criminal conduct. Class action lawsuits usually are filed by a large number of parties, all of whom believe they have been harmed by a common offender. Class action suits make it possible for parties who otherwise could not afford litigation to pool their resources, form a class, and pursue redress. They originate in all areas of commercial life, including building and construction products, stocks and securities, drug and medical products, and motor vehicle products. In many class action suits, the cost of litigation exceeds the eventual settlement or court award.

Whistleblowers are citizens who divulge to enforcement agencies or personnel their suspicion or knowledge of wrongdoing in an organization. Some whistleblowers are officers or employees who report actions by their employer, but others are outsiders who learn about or observe suspicious conduct and report it. Internal informants and whistleblowers are one of the most important sources of discovery of crimes that victimize organizations. A global survey (Shover & Scoggins, in press) of more than 5,500 corporations found that law enforcement detected only 4% of crimes in which responding firms were victims of economic offenses perpetrated against them. Of the remaining cases in which companies were victimized, 60% learned from informants and 36% learned by accident. The number of firms that were victimized not by individuals but by organizations is not reported.

In the United States, federal legislation provides that whistleblowers can receive a proportion of any settlement or recoveries in cases where they provide key information. This is meant to spur insiders with knowledge of wrongdoing to come forward and report to authorities. Nearly all of the states also have enacted legislation providing employment protection and monetary rewards for whistleblowers.

Whistleblowers are targets of retaliatory and discriminatory actions by many organizations whose suspicious or illicit actions are reported to outside authorities. Organizational officials typically combat their accusations by questioning their motives and character and painting them as renegades. Faced many times with unwelcome notoriety and the financial costs of legal representation to resist retaliatory actions, the experience of whistleblowing can be extremely disruptive of life, work, and career routines. The toll on physical and emotional health can be devastating. Some organizations do not sit by when subjected to public criticism or rebuke; some use their resources not only to bully but also to retaliate against private citizens and civic groups. When they resist these actions, whistleblowers usually prevail, but the financial and emotional costs can be staggering.

Economic Globalization

Globalization designates the increasing number and complexity of political-economic relationships that cross national borders. Economic indicators make clear that it is on the march. Old barriers of time and distance have been obliterated, as technology enables conduct of complex commercial transactions almost instantaneously over enormous geographic distance. As the links between national economies strengthen and expand, and “because capital is at once mobile and in short supply, the desire to attract foreign capital makes it difficult to control a nation’s capital” (Best, 2003, p. 97). Globalization of production and markets is a powerful constraint on oversight, and it has set off a vigorous debate over how nations should respond.

Competition and Oversight

One of the most important reasons for this is another by-product of globalization: increased governmental and business competition for resources and markets. Growing global competition means that what once was commonplace but largely confined to the competitive dynamics of national economies now is produced on a grander scale. The difficulties of controlling corporations were enormous in a world of national economies and corporate actors, but efforts to impose credible oversight on their activities cause firms to locate elsewhere or to threaten relocation. Concern that jobs are in danger contributes to public reluctance to regulate industries and firms close to home. Corporate executives are astutely aware of pressures on governments caused by global competition. They demand access to state funds and weak oversight in return for favorable sitting decisions and permit requirements. This dynamic is played out across the globe as they negotiate with political leaders also for low taxes, low-cost government services, free infrastructure, and limited restrictions on their autonomy. In return, they promise jobs.

Industries and companies in one nation do not take lightly competitive recruitment by representatives of other nations with promises of largesse and pro-business environments unavailable to them. Nor are they willing to accept easily that because home offices are located within the borders, their operations should be regulated and taxed more stringently than companies that keep parts of the company abroad. As pressure to loosen regulatory requirements and oversight intensifies, the challenge of maintaining levels of oversight comparable to what some nations once exercised domestically becomes greater.

In contemporary cross-border exchanges, the variety, scale, and complexity of transactions also are significant barriers to credible oversight. The technical and administrative capacity to do so effectively is within reach of few, if any, nations. The signatories to international trade agreements typically pledge to adopt and enforce in their home countries elementary regulations for environmental protection, worker rights, and product safety, but police and prosecutors generally lack the budget, expertise, and other resources to pursue cases that arise. It seems clear that as oversight becomes more distant geographically and less certain in application, its efficacy suffers. This dynamic becomes more common in a world where state control increasingly is “bypassed by global flows of capital, goods, services, technology, communication and information” (Best, 2003, p. 97).

Self-Regulation and Compliance Assistance

In the closing decades of the 20th century, as economic globalization began increasing rapidly, Western nations witnessed a revolutionary change in the dominant approach to regulatory oversight. Traditionally, regulatory agencies promulgated regulations for their areas of responsibility, maintained an enforcement staff to monitor organizational compliance, imposed small civil fines on organizations found to be in violation, and occasionally referred for possible criminal prosecution cases of egregious and serious offenses. The underlying justification for this approach is grounded in notions of deterrence. Dubbed “command-and-control regulation” by critics, by the beginning of the 1980s it came under increasing attack and eventually was displaced.

In its place, enforced self-regulation and “responsive regulation” de-emphasizes direct state oversight of production processes with insistence on organizational self-monitoring of compliance and creation of internal oversight mechanisms to ensure it. Common to nearly all the new programs is increasing trust and reliance upon industries and corporate firms for ensuring compliance with regulatory standards. At the same time, efforts are made to involve other parties in the regulatory process; professional organizations, business groups, and community organizations all are seen as playing roles in efforts to minimize noncompliance by organizations. The growth of the new regulatory style means that the state has shifted the bulk of its regulatory efforts to programs to educate the regulated entities about what is required of them and assist them in developing and operating internal compliance programs. Increased competition caused by rapid globalization of economic production and markets is a major factor contributing to the rapid diffusion of responsive regulation.

There have been remarkably few evaluative studies of the efficiency and effectiveness of organizational selfregulation and even fewer that are methodologically rigorous. Admittedly, the claims are not easy to evaluate. The difficulties start with the diversity of activities and processes to which self-regulation has been applied. Health care, machine parts quality, occupational health and safety, financial transactions, and environmental protection are examples. This variation is reason to believe that a straightforward and broadly applicable verdict on self-regulation will not come quickly, but this almost certainly will depend upon industry characteristics, the nature of organizational variation, and official resolve. The lion’s share of investigations thus far have been focused on (a) differential receptiveness by corporate managers to self-regulation requirements, (b) the process of adoption and implementation by industries and firms, (c) changes by firms in self-reporting of regulatory violations, and (d) changes in the calculus of compliance decision making by corporate managers. The twin explanatory challenges are to identify characteristics of industries, regions, or time periods that are conducive to or limit adoption and use of self-regulation, and to isolate the characteristics or dynamics of organizations that adopt and employ self-regulation more readily than others.


There are good reasons to believe that a tide of organizational crime is occurring; criminal opportunities have increased as oversight has not kept pace, and competition is stoked to new intensity by globalization of production and markets. Research into criminal deterrence suggests that the certainty of threatened punishment has a modest deterrent effect, but the severity of threatened punishment has little if any. The severity of penalties imposed on some organizational criminals increased noticeably in the decade before the new millennium, but what is significant about this development is the small number of organizational defendants during the same time period; the certainty of punishment for organizational criminals was and remains strikingly low. The small number of organizations prosecuted for and convicted of crime by the United States courts casts severe doubt on the deterrent effectiveness of current levels of punishment. The combined effects of this and the movement toward programs of cooperative regulation likewise give reason for doubt.