Power of Ideas
The Blame Game
Prof. Jo-Ellen Pozner explores the social consequences
By Kathleen Maclay
Corporate misconduct can be the stuff of high drama. But prevailing theory has it that "settling up," the process of meting out consequences for corporate misdeeds, is largely determined by quite rational, unbiased financial markets and often the legal system.
Not necessarily so, according to Assistant Professor Jo-Ellen Pozner, a member of the Haas School's Organizational Behavior and Industrial Relations Group.
Instead, human social behavior and the fear of organizational and individual stigma by association actually drive the settling up process and outcomes such as firing, loss of appointments to outside corporate boards, and diminished job prospects, Pozner says in an article, "Stigma and Settling Up," in the June edition of the Journal of Business Ethics.
As an example, Pozner points to the case of Ralph Cioffi and Matthew Tannin, former hedge fund managers at the failed Bear Stearns investment bank, who were indicted for allegedly conspiring to mislead investors and commit securities fraud.
"Linking Cioffi and Tannin's names to the subprime mortgage crisis makes them easily identifiable villains, diverting attention from the problematic practices at individual institutions, and the faults within the larger financial system that enabled their behavior," she says. And by using these two managers as scapegoats, the rest of the financial industry can avoid some of the public scrutiny that might damage other banks' reputations, Pozner adds.
Similarly, Pozner says that pinning the Bear Stearns demise to Cioffi and Tannin takes some of the heat off Bear Stearns and JPMorgan Chase, which acquired Bear Stearns. "If these two 'bad apples' were responsible for what happened at Bear Stearns — which implies that the rest of Bear Stearns executives were not — JPMorgan Chase can continue to employ former Bear Stearns executives without damaging its own image," she says.
That desire to take the heat off and avoid being tainted by misconduct is the goal of behaviors such as avoidance, ostracizing, scapegoating, and other actions intended to isolate executives and directors who are seen as responsible or are easily targeted as such, says Pozner. Organizations can behave similarly to people, she says, and tend to associate with other companies they consider legitimate while avoiding those appearing to be unacceptable.
These exclusionary efforts may also "result from the fundamental desire to separate the pure or the sacred from the dangerous or profane, or may be the result of an evolutionarily determined desire to create physical distance between oneself and parasites or other contaminants that might drain or damage oneself," Pozner writes in the journal article.
Whatever the root cause, the results can be puzzling and anything but rational or market-induced. As an example, Pozner cites a 1995 study
that concluded that managers who are let go after their companies file for Chapter 11 bankruptcy protection are no more responsible for organizational failure than those who aren't let go, and the dismissed managers are not worse decision-makers than those who keep their jobs.
She writes, "Such a finding suggests that, following negative organizational outcomes, and particularly following misconduct, somebody must be blamed."