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PhD Defence Timo Fiorito | On the Moral Side of Enterprise - The complexities, perils and promises of organizational character and integrity

On the Moral Side of Enterprise - The complexities, perils and promises of organizational character and integrity

Due to the COVID-19 crisis the PhD defence of Timo Fiorito will take place (partly) online.

The PhD defence can be followed by a live stream.

Timo Fiorito is a PhD student in the research group Entrepreneurship, Technology, Management (ETM). His supervisor is prof.dr.ir. P.C. de Weerd-Nederhof from the Faculty of Behavioural, Management and Social Sciences (BMS).

One of the most intriguing aspects of modern business is that organizations have become social actors, equivalent in many respects to human actors. In acknowledging organizations as social actors, we have come to recognize their capacity for responsibility, moral agency, and purposive action. This understanding is reflected in our tendency to attribute human qualities, traits and behaviors to collective entities; for instance, when we evaluate firms as virtuous for addressing pressing social and environmental challenges. Conversely, we are inclined to question the moral character and integrity of firms in the wake of misbehavior. Importantly, because of their attributed “actorhood”, organizations are increasingly expected to cope with a multiplicity of institutionally derived roles, obligations and duties. Consequently, leaders of modern organizations are finding that value creation by the business and the values, norms and rules of the societies in which they operate are intertwined―in complex and often perilous ways.

 However, scholars have not yet developed a comprehensive theory that explains why organizational actors come to embody a particular set of values, beliefs and interests, how they actively translate those into actions toward stakeholders, and why they persistently stay true to self-imposed commitments or, in some cases, stray away from them in profound ways. Much extant organizational theory is predominantly interested in processes and phenomena at a micro-level or macro-level, ignoring the origins, distinctive features and inner workings of organizational actors themselves. We argue that this research gap is troubling, considering that organizations as unique social actors are increasingly becoming the subject of moral scrutiny, in both everyday and academic discourse.

In this dissertation, we address the complexities, perils, and promises of organizational character and integrity. Specifically, we study the processes through which organizations form character, sustain or fail to maintain integrity and remediate misconduct. We believe that providing insight on these organizational phenomena is crucial, both for the academic debate on the moral responsibility of collective entities and for those institutional actors seeking solutions to ethical and social challenges. This dissertation includes four studies―one conceptual and three empirical―in which we address these matters in the context of the financial industry.

The purpose of Chapter 2 is to provide conceptual clarity on the notion of organizational integrity. Despite considerable scholarship on individual integrity, particularly as it relates to leadership behavior, there is still much ambiguity and inconsistency surrounding integrity at the collective level. In that chapter, we review the literature on integrity and theorize about its meaning and as building blocks, as and also the challenges for organizations in maintaining their integrity. Building on the scholarly work on organizational values and identity, we conceptualize integrity as the ‘wholeness’ of values espoused by leadership, the values embedded in formal structures and shared by members, and the values enacted in organizational actions. Importantly, as many modern organizations operate within an increasingly pluralistic institutional landscape, we acknowledge the heterogeneity of values within organizations and the challenges this inevitably presents fo maintaining integrity. Based on our conceptual model and, the associated propositions, we examine the application of integrity in the subsequent empirical studies.

In Chapter 3 we build on our propositions and explore how the character of organizations develop when corporate leaders espouse their commitment to addressing social concerns. When organizations adopt such commitments, for instance concerning corporate responsibility, business ethics and sustainability, they admit new responsibilities and objectives within their boundaries that may ostensibly conflict with the embedded values, identities and interest. We conducted case studies at two major financial firms that have become increasingly committed to corporate social responsibility. Based on in-depth interviews with executives, senior managers, and policymakers, we find that the development of character over time involves a collective process of negotiation, compromise, and conflict over values, beliefs and interests through which espoused commitments become anchored in the character of the organization.

In the Chapter 4 we investigate why organizations persistently violate accepted ethical, normative or regulatory principles (termed integrity failure). Although some integrity failures may be unintentional or brought about by isolated individuals, we speculate that the tendency of organizations to persist in tolerating such failures is the result of the interaction between flaws in the character of the organization and imperfections in the institutional system in which the organization is embedded. The latter assumption requires us to recognize and include the actions (or inactions) of social control agents in our empirical analyses. In that chapter, we conduct three case studies into financial firms that repeatedly violated anti-money laundering regulations over a 15-year period. We are particularly interested in the role of regulatory agencies in the materialization and persistence of rule violations. Based on our analysis of archival material and interviews with regulators, we find that when procedural rules are experienced as commercially restrictive and/or ambiguous, firms are likely to perceive such rules as illegitimate. At the same time, we find that if regulators do not punish violations of procedural rules, the undesirability of rule violations is inadequately signaled which may inadvertently lead to its “normalization”. Together, these processes tend to lead firms into complacency. We find that the restraint and poor visibility of enforcement induce complacent firms to deliberately maintain the status quo. However, regulators can use salient critical events to signal both the immorality and the organizational consequences of rule violations and enforce substantive remediation.

In Chapter 5, we build on our earlier observation that critical events in an organization’s life course, such as integrity failures, have the potential to be character-defining. To examine how organizations adapt to integrity failure, we conduct an ethnographic study of a European financial firm that was nationalized during the 2007-2008 financial crisis. We find that integrity failures that combine profound uncertainty over the identity of the organization with a distrust towards its values may coalesce in an impetus for leadership to rebuild the character of their organization. This study reveals that successfully rebuilding character not only relies on neutralizing the policies, practices and narratives that have become perceived as problematic remnants of an undesirable organizational self, but also on the use of rhetorical history and the retrieval of latent values and ideals. Importantly, although this twofold character work is crucial in recementing identification and trust from key constituents, fully obfuscating memories of a problematic past may indeed be extremely difficult or impossible. We find that while a blemished character will have enduring behavioral and evaluative implications for the organization and its members, a problematic legacy can―with skill and genuine commitment―be purposefully and strategically harnessed to foster organizational distinctiveness.

The results of this dissertation contribute to both organizational theory and practice. Whereas scholars have been focused primarily on social phenomena above or below the organization-level line of sight, this dissertation reinvigorates the academic debate on the “actorhood” of modern organizations. Based on our studies on organizational integrity and character, we show that the latent values of an organizational institution may systematically affect its ability to learn and adapt to external changes, but can be purposefully deployed after moral failure to guide the organization in a better direction. In addition, by illuminating the processes that enable the materialization, persistence and remediation of misconduct, this dissertation provides important insights on the growing scholarly interest in the “dark side of organizations”. This dissertation also offers practical implications for leaders on how to maintain the integrity of their organizations and to rebuild character in the aftermath of moral adversity, as well as for those actors responsible for detecting, preventing, and eradicating misconduct within and by organizations. Finally, this dissertation opens new avenues for future research on the plurality of values within organizations, character and integrity, and the role of social-control agents in both preventing and combating “normalized” misconduct..