The Effects of Organizational and Political Embeddedness on Financial Malfeasance in the Largest U.S. Corporations

Abstract

This article examines the causes of financial malfeasance in the largest U.S. corporations between 1995 and 2004. The findings support organizational-political embeddedness theory, which suggests that differential social structures create dependencies, incentives, and opportunities to engage in financial malfeasance. The historical analysis shows that neoliberal policies enacted between 1986 and 2000 resulted in organizational and political structures that permitted managers to engage in financial malfeasance. Our quantitative analysis provides three main findings. First, capital dependence on investors creates incentives to engage in financial malfeasance. Second, managerial strategies to increase shareholder value create incentives to engage in financial malfeasance. Third, the multilayer-subsidiary form and the political structure permitting corporate PAC contributions create opportunities to engage in financial malfeasance. These findings have important implications for public policy; the corporate and state structures enacted in the late-twentieth century were the outcome of a long-term, well-financed, and systematic political strategy that provided managers with unprecedented power, autonomy, and opportunity to engage in financial malfeasance.

Unruly Subjects: Misbehaviour in the Workplace

“…In the UK and the USA, ownership remains highly concentrated, but large organizations are now constituted by very large numbers of smaller constituent parts. In terms of corporate structures, very large, often conglomerate, firms concentrate ownership, but are without detailed centralized control (Harrison, 1994;Ackroyd, 2002;Prechel, 1997Prechel, , 2010. Large firms dominate decentred, 'directed' networks and retain significant strategic power capacity at the centre, using sophisticated IT systems to coordinate activities with financial controls as opposed to detailed bureaucratic direction.…”

“…Yet, the misbehaviour of executives and managers has been, with some honorable exceptions (Punch, 1996;Jackall, 2010) almost entirely ignored by contemporary social science. Indeed there are some indications managerial misbehaviour is becoming more rather than less prevalent (Sayles and Smith, 2005;Prechel and Morris, 2010). Despite this, research-based and especially ethnographic work in these areas is limited and, in practice, there is little possibility of treating misbehaviour by all levels of employees in the same depth and with comparable rigour.…”

Corporate Social Responsibility Disclosures, Traditionalism and Politics: A Story from a Traditional Setting

“…The prevalence of political interests and patronage in corporations is well noted in the literature (Muthuri and Gilbert 2011;Chapple and Moon 2007;Prechel and Morris 2010;Walker and Rea 2014;Lux et al 2011). The political ties of corporations and their influence on corporate conduct take different shapes and forms, depending on the institutional and political settings of the countries in which they operate Dieleman and Boddewyn 2012).…”

Shareholder Value and Workforce Downsizing, 1981–2006

“…This account has two components. First, building on resource dependence theory, I suggest a mechanism of coercion operating through the power of external resource providers to impose their preferred management paradigms upon firms (Pfeffer and Salancik 1978;Prechel and Morris 2010). Since the 1980s, large U.S.…”