Leroy Gonsalves – Organizational Behavior, Harvard University
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Under Pressure: Evidence for the Strain Theory of Organizational Misconduct
Strain theory has long been invoked to explain the prevalence of misconduct in organizations, with underperformance creating pressure for managers to engage in illegal activities. Drawing on research on risk- taking, I theorize a ‘legal risk’ effect, where firms’ response to performance strain is contingent upon both internal legal capacity and external legal risk. I further predict that underperforming firms will be most likely to engage in proximate forms of misconduct (economic and labor misconduct) which are subject to short-term managerial discretion as compared to distal forms of misconduct (environment and product misconduct) that tend to arise from carelessness or complexity. I find support for these propositions using longitudinal data on all material legal claims filed against S&P1500 firms between 2000-2017. The study builds on the strain theory of organizational misconduct, providing a more nuanced understanding of when and how performance strain is most likely to manifest in particular kinds of illegal activities.