Corporate Scandals: In The Age of ‘Responsible Business’

Abstract

This thesis examines how corporate scandals work, the circumstances that make them possible, and how they are accounted for by wider society. The thesis finds that first, companies with high social responsibility scores (according to environmental, social, and governance (ESG) ratings) are more prone to scandals compared to a matched control group. Second, it finds that the Danske Bank money laundering scandal emerged and endured through the interaction of different social-control agents who formed a framing coalition against the alleged company. Third, the thesis finds that identities of companies ending up in scandals are configurated through interactions of human and nonhuman actors, including framing devices and experts. Recently a new stream of literature has emerged within the social-evaluation literature, analyzing the role of social-control agents in scandal emergence, and in doing so, viewing scandals as a social construction. Addressing this emerging stream of scandal research, this thesis examines the phenomenon of corporate scandals in the age of ‘responsible business.’ The first chapter, Deceived by ‘S’: corporate scandals and ESG, examines if ESG ratings (a measure of good behavior) can predict scandals. The empirical inquiry is built on a comprehensive data material: a unique, hand collected sample of 113 global corporate scandals and a corresponding control group. Using logit regressions, the first chapter finds that scandals happen in otherwise perceived ‘socially responsible companies’ (with high ‘S’ scores, according to ESG rating agencies). In doing so, this thesis contributes with new empirical evidence to a growing stream of literature that takes a critical view on the reliability of ESG rating providers. This unexpected – and thought-provoking – finding not only raises questions about the reliability of the ratings, but also about how scandals work and are accounted for. The subsequent two chapters address these questions. The second chapter, How social-control agents interact in scandal emergence: insights from Danske Bank, examines how scandals emerge and endure. In doing so, it examines how different social-control agents interact therein. Shifting the methodological approach to a qualitative deep dive case study, this chapter analyzes the Danske Bank money laundering scandal through large data material and original interviews with central persons involved. Drawing on Goffman (1959) and Entman (1993) allows for analyzing interactions of multiple social-control agents. In doing so, the analysis reveals how a framing coalition of different social-control agents were formed to create a case against Danske Bank in the money laundering scandal. With this framing coalition the case went from being isolated to misconduct in the bank’s Estonian branch to being a global scandal. This chapter contributes to existing social evaluation literature with the theory concept of a framing coalition developed by combining Entman (1993) and Goffman (1959). It shows how different social-control agents impose each their framings on the audience and interact with each other with each their frontstage and backstage. In the third chapter, Framing and overflowing in corporate scandals, the focus shifts to the company. Drawing on actor-network theory (ANT) and Callon’s (1998) twin notions of framing and overflow, this chapter examines how company identities are configurated before and during scandal emergence. The analysis of four corporate scandals finds that nonhuman framing devices, such as medical labels and certifications, contribute to establishing a frame of companies, serving as façades. In addition, it shows how experts played a central role in purifying the frame of the scandal firm.