Ethical Spillovers in Firms: Evidence from Vehicle Emissions Testing

Abstract

In this paper, we explore how organizations influence the unethical behavior of their employees. Using a unique data set of over three million vehicle emissions tests, we find strong evidence of ethical spillovers from firms to individuals. When inspectors work across different organizations, they adjust the rate at which they pass vehicles to the norms of those with whom they work. These spillovers are strongest at large facilities and corporate chains, and weakest for the large-volume inspectors. These results are consistent with the economics literature on productivity spillovers from organizations and peers and suggest that managers can influence the ethics of employee behavior through both formal norms and incentives. The results also suggest that employees have persistent ethics that limit the magnitude of this influence. These results imply that if ethical conformity is important to the financial and legal health of the organization, managers must be vigilant in their hiring, training, and monitoring to ensure that employee behavior is consistent with firm objectives.peer effects, spillovers, fraud, corruption, productivity, ethics

Compliant Sinners, Obstinate Saints: How Power and Self-Focus Determine the Effectiveness of Social Influences in Ethical Decision Making

“…However, not all employees react equally to social influences, and the question of when and why organizational environments affect employees was left unexplained by past research. This explanatory problem precluded a deeper understanding of a range of organizational phenomena, including ethical climate (Victor & Cullen, 1988), ethical culture (Treviño, 1986;Treviño et al, 1998) and conformity to (un)ethical colleagues (Gino et al, 2009;Pierce & Snyder, 2008). Our research emphasized the fact that ethical decision making occurs in the context of power differences, and identified variations in power as a parsimonious explanation for when and why organizational environments affect employees' ethical decision making.…”

“…For instance, we know that ethical culture may promote ethical conduct (Treviño et al, 1998), but we do not know when and why it does so. We also know that unethical coworker conduct may lead employees to behave more unethically (Ashforth & Anand, 2003;Pierce & Snyder, 2008), but we do not know when and why this actually happens. In the following section, we develop a theoretical model explaining how decision-maker's social power and self-focus can help answer these questions.…”

“…First, our research contributes to the ethical decision-making literature by identifying self-focus caused by power as an explanation for when and why organizational environments influence employees to make (un)ethical decisions. A large body of research focused on understanding ethical decision making in organizations (Kish-Gephart et al, 2010) and this research suggests that individuals' behavior is strongly influenced by the characteristics of an organizational environment (Gino et al, 2009;Pierce & Snyder, 2008;Treviño, 1986;Treviño et al, 1998). However, not all employees react equally to social influences, and the question of when and why organizational environments affect employees was left unexplained by past research.…”

“…Both ethical decision-making theory (Sonenshein, 2007;Treviño, 1986) and related studies (Gino, Ayal, & Ariely, 2009;Pierce & Snyder, 2008;Treviño, Butterfield, & McCabe, 1998) suggest that employees' ethical decision making will be consistent with the social influence they are exposed to. Those working in an organization with an ethical code of conduct are expected to make more ethical decisions (Treviño et al, 1998) whereas those working in organizations in which unethical behavior is widespread are more likely to make unethical decisions themselves (Pierce & Snyder, 2008).Although social influence has a powerful impact on individual decision making Turner, 1991), not all employees are swayed by their context when responding to moral issues. For example, news reports tell stories about cheating employees within organizations whose members typically do not cheat (Weisman, 2007).…”

License to Cheat: Voluntary Regulation and Ethical Behavior

“…For example, Carpenter, Matthew, and Schirm (2010) found that sabotage among coworkers is higher in tournaments than it is under piece-rate compensation. Pierce and Snyder (2008) showed that unethical conduct by automobile inspectors is influenced by the presence of unethical conduct in the organization where those inspectors work. Related research conducted in laboratory settings examines how individuals' unethical behavior often arises through vertical specialization, which diffuses the responsibility for behaving unethically (Ellman and Pezanis-Christou, 2010;Hamman, Weber, and Loewenstein, 2010).…”