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Do Competitive Environments Lead to the Rise and Spread of Unethical Behavior? Parallels from Enron

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Abstract

While top-down descriptors have received much attention in explaining corruption, we develop a grassroots model to describe structural factors that may influence the emergence and spread of an individual’s (un)ethical behavior within organizations. We begin with a discussion of the economics justification of the benefits of competition, a rationale used by firms to adopt structural aides such as the ‹stacking’ practice that was implemented at Enron. We discuss and develop an individual-level theory of planned behavior, then extend it to the dyadic level in an internally competitive organization, and finally extend the dyadic model to the social network. We apply social network theory to predict favorable and unfavorable conditions for the emergence and diffusion of an intraorganizational instance of unethical behavior and find that network conditions favoring the suppression of the emergence of unethical behavior also promote its diffusion. For illustrative purposes, we utilize examples from Enron’s internally competitive structure to embed our arguments in a real world context and bring reality to our theorizing. Implications for both researchers and managers are discussed.

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Authors and Affiliations

  1. Department Management, College of Business, Central Washington University, 400 East University Way, Ellensburg, WA, 98926-7485, U.S.A.

    Brian W. Kulik

  2. Hospitality and Tourism Management, College of Business, James Madison University, MSC0202, Harrisonburg, VA, 22807, U.S.A.

    Michael J. O’Fallon

  3. Department of Management, College of Business, University of North Texas, BA317G, 1167 Union Circle, Denton, TX, 76201, U.S.A.

    Manjula S. Salimath

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  1. Brian W. Kulik
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  2. Michael J. O’Fallon
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  3. Manjula S. Salimath
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Correspondence to Brian W. Kulik.

Additional information

Brian W. Kulik is an assistant professor in the Department of Management at Central Washington University. He received his Ph.D. in Management from Washington State University. He has also earned M.S. degrees from Washington State University and the University of Cincinnati, and an M.B.A. from the University of Denver. His work focuses on the prevention of corporate corruption, corporate governance and ethics, teamwork dynamics, and research methods. His research to date has been published in the Journal of Business Ethics, International Journal of Organizational Analysis, and Journal of Educators Online.

Michael J. O'Fallon is an assistant professor in Hospitality and Tourism Management at James Madison University. He received his Ph.D. in Management from Washington State University. His current research interests include peer influences in individual ethical decision-making and behavior in organizations, understanding academic dishonesty, individual corruption in organizations, and consumer behavior toward genetically modified foods. His research has been published in the Journal of Business Ethics, International Journal of Hospitality Management, and Journal of Foodservice Business Research.

Manjula S. Salimath is an assistant professor in the Department of Management at University of North Texas. She received her Ph.D. in Management from Washington State University, and her M.S., M. Phil., and Ph.D. in Psychology from Bangalore University. Her current research interests include cross national determinants of entrepreneurship, ethical dilemmas in corporate governance, strategic approaches to poverty alleviation, corporate social responsibility, and macro influences on corruption in transitional economies. Her research has been published in Management Decision, Frontiers of Entrepreneurship Research, and Journal of the Indian Academy of Applied Psychology.

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Kulik, B.W., O’Fallon, M.J. & Salimath, M.S. Do Competitive Environments Lead to the Rise and Spread of Unethical Behavior? Parallels from Enron. J Bus Ethics 83, 703–723 (2008). https://doi.org/10.1007/s10551-007-9659-y

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