CORPORATE SCANDALS AND SPOILED IDENTITIES:
HOW ORGANIZATIONS SHIFT STIGMA TO EMPLOYEES


Danielle E. Warren


Abstract: I apply stigma-management strategies to corporate scandals 
and expand on past research by (a) describing a particular type of 
stigma management strategy that involves accepting responsibility 
while denying it, (b) delineating types of stigma that occur in scandals 
(demographic versus character), and (c) considering the moral implications 
of shifting stigmas tbat arise from scandals. By emphasizing 
the distinction between character and demographic stigma, I make 
progress in evaluating the moral implications of shifting different types 
of stigma. 

New York Attomey General Eliot Spitzer bas said publicly that be did not 
charge Merrill Lynch & Co. with crimes related to its analysts' conflicts of 
interest this year because he did not want to risk killing the firm. (Hockstader, 
2002: EOl) 

Organizations are motivated to avoid stigmas because they lead to negative 
organizadonal outcomes such as loss of investors, drop in stock price, difficulty 
attracdng customers, reducdon in sales, and employee turnover (Elsbach, 
1994; Elsbach, Sutton, & Principe, 1998; Marcus & Goodman, 1991; Sutton & 
Callahan, 1987). Sutton and Callahan describe how negadve reacdons from the 
organizadon's environment lead to an increased probability of bankruptcy and 
organizadonal death. Scandals, an example of a sdgma-producing event, threaten 
to spoil the organizadon's idendty. As Marcus and Goodman (1991: 284) explain, 
"Scandals are disgraceful or discreditable occurrences that compromise perpetrators' 
reputations." Thus, organizadons are motivated to avoid scandals and the 
threat of sdgmas. 

Management researchers provide a comprehensive examination of communicadon 
strategies used by organizadon spokespersons to avoid or midgate the effects 
of a negative event and subsequent harm to organizadonal idendty. These tacdcs 
include concealing informadon about the event, emphasizing posidve organizadonal 
attributes, redefining the situadon for the organizadon's audience, withdrawing from 
the organization's audience, accepting responsibility for the event, and denying 
responsibility (Dutton & Dukerich, 1991; Elsbach, 1994; Elsbach & Kramer, 1996; 
Elsbach et al., 1998; Marcus & Goodman, 1991; Sutton & Callahan, 1987). 

© 2007. Business Ethics Quarterly, Volume 17, Issue 3. ISSN 1052-150X. pp. 477-496 


BUSINESS ETHICS QUARTERLY 

As it is currently discussed in the management literature, the strategy of accepting 
responsibility for a scandal is distinct from that of denying responsibility, which 
involves blaming the environment, top managers, or employees who no longer 
work for the firm (Boeker, 1992; Gundlach, Douglas, & Martinko, 2003; Sutton & 
Callahan, 1987). In this article, I expand on these two tactics by considering situations 
where the organizational leaders accept responsibility by shifting the stigma 
to a subset of the organization or a specific organizational member. I describe how 
organization spokespeople target not only those who were involved in the scandal 
but also those who were not. Understanding this process and the subsequent transfer 
of stigma is important for not only protecting the interests of employees, but 
also the development of policies associated with assignment of responsibility and 
subsequent litigation for corporate wrongdoing. 

I begin by reviewing literature on stigma including its various types, how it is 
applied to business research, and its relationship to controllability. This review is 
followed by a discussion of stigma-management strategies in which an extension of 
existing theory is presented. This discussion continues with a focus on the process 
of shifting stigma to a subset of the organization with a focus on the exploitation 
of informational asymmetries. I consider how prosecutorial incentives augment the 
likelihood that this process will occur and end by considering the moral concerns 
and policy implications of stigma-management strategies used by organizations 
involved in scandals. 

Stigma 

Goffman explains that stigmas "refer to an attribute that is deeply discrediting" 
(1963: 3) and discusses three forms, characterized as physical, demographic, and 
character. The first form, physical, focuses on bodily abnormalities. Demographic 
stigma, the second form, includes social categorizations such as ethnicity and 
religion. The third form, character stigma, is described by Goffman as "blemishes 
of individual character perceived as weak will, domineering or unnatural passions, 
treacherous and rigid beliefs, and dishonesty" (1963: 4). Of the three forms of 
stigma, character and demographic are the most relevant to the subject of scandals 
in business organizations. Demographic stigma captures the stigma of belonging 
to a discredited social category such as an industry (e.g., the tobacco industry) or 
organization (e.g., innocent employee of Enron) while character stigma captures 
instances when a specific organization identity (e.g., Enron) or employee identity 
(e.g., Fastow) exhibits behavior that is considered discrediting such as dishonesty 
or unfair practices. 

Organizations and Employee Identity 

Organization identity, in this paper, refers to both the perceptions of the organization 
members (Dutton, Dukerich, & Harquail, 1994; Pratt & Foreman, 2000), 
as well as perceptions of those outside the organization (Elsbach & Kramer, 1996; 


CORPORATE SCANDALS AND SPOILED IDENTITIES

Scott & Lane, 2000; Sutton & Callahan, 1987). According to Elsbach and Kramer 
(1996: 442), "an organization's idendty reflects its central and distinguishing attributes, 
including its core values, organizadonal culture, modes of performance 
and products." A scandal poses a threat to this identity because it involves events 
that potendally contradict the organizadon's claims regarding values, culture or the 
quality of the organizadonal products, which may cause negadve reacdons from 
the organizadon's audience. The organizadon's audience refers to the members of 
the organizadon as well as the stakeholders who possess an ongoing interest in the 
organizadon (Scott & Lane, 2000; Sutton & Callahan, 1987). 

Sdgma threats in business have been studied at populadon levels, such as groups 
and organizadons, as well as at the individual level. Past studies examine the effects 
of organizadonal idendty threats on organizadonal members (Dutton and Dukerich, 
1991; Dutton et al., 1994; Elsbach and Kramer, 1996; Sutton and Callahan, 1987), 
while others focus on the threats of social group sdgmas on individuals (Crocker, 
Comwell, & Major, 1993; Crocker, Voekl, Testa, & Major, 1991; Heihnan, Block, 
& Stathatos, 1997; Weiner, Perry, & Magnusson, 1988). The focus, in many cases, 
is on the relation between the population's idendty and the individual's idendty. 
Few management studies, however, examine processes whereby sdgma is intendonally 
shifted inward, towards specific members of the group, in an attempt to avoid 
spoiling the organizational idendty. 

Uncontrollable and Controllable 

The conceptualizadon of sdgma in this paper differs from blame, although the 
two may often coexist in the case of organizadonal scandals. While sdgma captures 
the discrediting effects of the blame that the organizadon or the employee experiences, 
those who are not blamed for the scandal's events may still experience a 
demographic stigma. This disdnction between sdgma and blame resembles the 
difference between stigma and responsibihty, or controllability, as it is referred to 
in the psychology literature. 

Few studies in management recognize differences in types of stigma (physical, 
character, demographic) as it relates to nodons of personal responsibility (controllable, 
uncontrollable), but the psychology literature emphasizes this distinction 
(Crocker et al., 1991; Crocker et al., 1993; Weiner et al., 1988). Weiner, Perry, and 
Magnusson (1988: 739) describe controllable sdgmas as those involving a "lack 
of personal effort or will" and uncontrollable stigmas as those involving a "lack 
of aptitude or externally imposed barriers." This definidon of controllability bears 
similarity to Goffman's descripdon of character stigmas, which involved a weak 
will. Psychologists note the strong alignment between character stigmas and perceptions 
of controllability (Crocker et al., 1993; Weiner et al. 1988). Conversely, 
demographic stigmas can be characterized as uncontrollable if the circumstances 
that lead one to fall into a particular social categorizadon are beyond the control of 
the individual (e.g., ethnicity, gender, age) or controllable if the social categorizadon 
is the result of personal choice (e.g., membership in certain sdgmatized groups). 


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For instance, if an individual joined a firm that already possessed a stigma, then 
the employee may experience a controllable demographic stigma. Altematively, if 
an individual were a member of a well-regarded firm that subsequently suffered a 
scandal, then this demographic stigma would be considered more of an uncontrollable 
than a controllable stigma. 

Perceptions of controllability may be shifted from controllable to uncontrollable 
when new infonnation is presented. Weiner, Perry, and Magnusson (1988) 
provide the example of when perceptions associated with AIDS were shifted from 
controllable to uncontrollable, once audiences received information on how the 
syndrome spread through blood transfusions and from mother to child. The ability 
to shift the perception of controllability is important when one considers the negative 
consequences associated with controllable stigmas. 

The difference in how controllable and uncontrollable stigmas are perceived 
is best described in the research of Weiner, Perry, and Magnusson (1988), who 
studied perceptions stemming from ten different stigmas. They found the degree to 
which study participants perceived a stigma as "controllable" affected judgments 
related to pity, liking, anger, and desire to help a stigmatized individual. The authors 
believe their findings have serious consequences for gaining govemment support, 
public assistance, or charity to aid those who possess stigmas that are perceived 
as "controllable." 

Whether the stigma is considered controllable or uncontrollable also influences 
the personal assessment of those who are stigmatized. Crocker, Comwell, 
and Major explain that character stigmas, which are often viewed as controllable, 
can cause self-blame and low self-esteem. They theorize that "[i]ndividuals with 
stigmatizing conditions that are controllable may recognize that their stigma leads 
to negative outcomes yet blame themselves for having the stigma. Thus, they may 
feel responsible for negative outcomes that are associated with the stigma and blame 
themselves rather than others" (Crocker et al., 1993: 67). As will be discussed later, 
this has important implications for manipulating those who are stigmatized and 
shifting blame for a scandal. 

In the business literature, Cannella, Fraser, and Lee (1995) tested the difference 
in labor market reactions to controllable and uncontrollable stigmas. In a study of 
managers from failed and non-failed banks, tbey found post-failure reemployment 
was twice as likely for managers when the bank's failure was deemed outside the 
manager's control than for managers from other failed banks (Cannella, Fraser, 
& Lee 1995). One can interpret these findings as suggesting that the labor market 
responds more favorably to managers who suffer uncontrollable demographic 
stigmas than managers who are associated with the firm's failure and are possibly 
suffering from controllable character stigmas. 

In short, past research suggests that when a scandal occurs, employees who 
suffer a character stigma, which is more often associated with controllability, may 
receive more negative outcomes (i.e., less opportunity for reemployment, less public 
support, less pity, less charity) than employees who suffer an uncontrollable stigma 


CORPORATE SCANDALS AND SPOILED IDENTITIES

such as demographic. In the remainder of the paper, I explain how organizadon 
spokespeople are adept at manipulating impressions of employee character by exploidng 
informadon asytnmetries such that the targeted employees are more likely 
to experience a character stigma than a demographic stigma. 

Stigma-Management Strategies 

The outcomes of organizadonal sdgma can be devastadng for a firm. Arthur 
Andersen, a focus of recent discussions regarding organizadonal survival in the 
face of a scandal, saw the effects of stigma even prior to any indictments (Ackman, 
2005; Hockstader, 2002; Toffler, 2003). As Ackman explains, "the direat of 
indictment sent clients scurrying and essentially destroyed Andersen's prospects 
as an auditor, because auditors are in the business of selling their reputadons for 
integrity and probity" (Ackman, 2005). The stigma associated with such a scandal 
can spark a chain of events involving financial difficulties, bankruptcy, and death 
that begins and ends prior to any formal legal proceedings regarding firm responsibility 
for the scandal. 

In an effort to avoid stigmas and protect against organizadonal failure, organization 
leaders and spokespeople employ sdgma-management strategies. Given 
that stigma is the result of some discrediting event or trait, an organization may 
face a stigma for a muldtude of reasons, including poor performance, affiliadons, 
disasters, accidents, and scandals. Empirical evidence suggests the organizational 
audience perceives types of sdgma differently and that these differences affect the 
success of the stigma-management strategies. 

In the most comprehensive examination of managing sdgma by organizadons, 
Sutton and Callahan (1987) studied organizations facing sdgma associated with 
bankruptcy. Using inductive research, Sutton and Callahan (1987) describe the 
stages through which an organizadon proceeds when faced with the stigma of 
bankruptcy. The stages of stigma management involve (1) concealing the financial 
circumstances, (2) defining the situadon for the audience, (3) denying responsibility, 

(4) accepdng responsibility, and (5) withdrawing from the audience. 
When a firm is facing a scandal, however, not all strategies are available. The 
nature of a bankruptcy allows for the blaming of external factors such as economic 
trends but responsibility for scandals is not easily denied. Marcus and Goodman 
(1991) found empirical support of this in a study of crises, which included scandals, 
accidents, and health and safety incidents. The authors exatnined stock market 
reacfions to firms' strategies and found, for scandals, accommodative signals from 
management (i.e., accepting responsibility, admitting problems, and taking actions 
to remedy the situadon) resulted in better market responses than defensive signals 
(i.e., denying die problem, alleviadng doubts about thefirm'sfinancial outlook, and 
actions to resume normal operations). Scandals, according to the authors, involve 
organizadonal breakdowns and failures and are not the failure of systems due to 
human error, which are more characterisdc of accidents and are thus easier to deny 


BUSINESS ETHICS QUARTERLY 

than scandals. Marcus and Goodman explain that "[r]esponsibility for a scandal 
is hard to deny because the events usually are the result of faults and misdeeds" 
(1991:284). 

Similarly, in a study of the cattle industry, Elsbach (1994) found that acknowledgements 
were more effective than denials for protecting organizational legitimacy. 
She explains that acknowledgements were effective because "most cattle industry 
controversies involved scandals or product-safety crises that were perceived to be 
the result of dehberate organizational actions" (1994: 72). Thus, Elsbach's interpretation 
conesponds with the theory presented by Marcus and Goodman (1991). 
Findings for both studies suggest that organizations facing scandals are better off 
acknowledging or accepting responsibility for the actions related to the scandal. 

Research outside the scandal literature also suggests that blaming the environment 
is not an effective strategy for afirm suffering from poorfinancial performance. Siegel 
and Brockner (2005) analyzed chief executive officer letters to investors and found, 
under conditions of prior poorfirm performance, that a chief executive officer's use 
of extemal self-handicapping (blaming extemal factors) had a negative effect on chief 
executive officer compensation and firm valuation. They reason that perceptions 
of controllability affect valuation of the firm and the chief executive officer. Siegel 
and Brockner explain, "When prior performance is negative, the CEO who claims 
an extemal handicap may simply be viewed as someone who identifies obstacles to 
performance but does nothing to ameliorate these problems" (2005: 16). 

These authors, however, do not consider that organizations can acknowledge 
faults and misdeeds within the organization yet redirect such responsibility to a 
subset of the organization (e.g, a branch office) or a failure of a specific employee. 
Warren (2006) suggests that organizations may create ethical subgroups to carry 
out the "dirty work" of the organization. She provides the example of an organization 
that quietly condones its marketing workgroup's use of deceptive advertising 
practices. If the practices were exposed, the organization could claim that the group 
acted without the organization's approval and shift blame for the practices onto the 
marketing group. 

For instance, a quieter, less known account of the bankruptcy of Barings Bank 
suggests Leeson did not have the ability to single-handedly destroy the Barings 
Bank because his actions required the knowledge and implicit consent of other 
organizational members, including upper management. Reports suggest that upper 
management was wamed of dangers associated with Leeson's autonomy in 
Singapore a year before his losses were realized, but that management did nothing 
to rectify the situation because Leeson appeared to be eaming a great deal for the 
organization (Miller, 1995). According to these accounts, Leeson provided an easy 
and available target for stigma and explaining the collapse of Barings Bank. 

The existence of subgroups presents a unique form of accepting responsibility 
in that the organization is both accepting and denying responsibility for the scandal. 
The organization spokespeople admit that wrongdoing occuned, but claim that the 
wrongdoing was isolated to one or two individuals, and that the organization as a 


CORPORATE SCANDALS AND SPOILED IDENTITIES

whole was not an accomplice in the wrongdoing. In some instances, the organizadon 
spokesperson attempts to claim that the organizadon was actually a vicdm of 
the wrongdoing. 

For example, in the apparel industry, when poor labor pracdces are revealed in 
the producdon of a specific clothing label, organizadons are quick to shift the sdgma 
to the subcontractors and distance themselves from them (Phillips and Caldwell, 
2005). Due to the inter-firm reladonship, such situadons provide a rare opportunity 
in which responsibility is shifted to a subset that is technically outside the firm. 

Past empirical research suggests that organizafional scandals are best managed 
through the acceptance of responsibility, which can produce a controllable character 
sdgma for the organizadon. The past research, however, has not considered 
strategies that shift the responsibility, and the subsequent sdgma, to a subset of 
the organizadon or to employees who are not top managers. In the next secdon, I 
consider possible targets for the sdgma. 

Possible Employee Targets 

In the last secdon, I discussed how the sdgma-management strategies are limited 
for scandals and that shifdng the sdgma to an organizadonal subset or an employee 
allows the organizadon to deny responsibility and save the orgatiizadon's idendty. 
The quesdon remains, whom should the organizadon target? In this secdon, I consider 
diree types of employees that may be targeted while acknowledging others 
may exist. 

Those who break the law or parficipate in unethical activides while employed 
by the organizadon are easy targets for receiving the blame and the subsequent 
sdgma. These employees threaten the organizadon's idendty, and as a result, the 
organizadon's leaders are modvated to both emphasize the difference between the 
organizadon's idendty and the wrongdoer's idendty and to shift attendon away 
from the organizadon. 

Sutton and Callahan (1987) found that some organizadon spokespeople, in the 

"deny responsibihty" phase, blame a previous organizadon member such as a former 

leader. In a related literature on impression management, there is a well-established 

tendency to attribute organizadonal performance to a specific orgatiizadonal member 

such as the chief execudve officer or top managers (Boeker, 1992). This literature 

suggests that some shift inward may occur fiom the chief execudve officer to up


per management. Boeker's research on scapegoadng provides evidence that firms 

suffering from poorfinancial performance with powerful chief executives are more 

likely to replace the managers who report to the chief execufive than replace the 

chief executive. Thus, the sfigma of the poor financial performance is shifted to 

the top managers who report to the chief execudve. This approach to accepdng 

responsibility is a matter of shifdng a potenfial controllable character sdgma from 

the organizadon to a specific individual. 


BUSINESS ETHICS QUARTERLY 

The finance literature offers further evidence of these practices, regardless of 

the managers' actions. When Poulsen and Khanna (1995) compared two samples 

of firms, one facing bankmptcy protection and another experiencing improved 

performance, they found that the managers' actions did not differ over a three year 

period, yet managers belonging to firms facing bankmptcy protection were fired. 

The top managers received the stigma for the financial failure despite acting the 

same as managers in firms that improved financially. 

Unlike financial crises, the top managers are not the only employees at risk of 
receiving stigma when a scandal occurs. Unless the scandal involves specific chief 
executive officer actions, such as extravagant purchases or embezzlement, top 
management may lack knowledge of the wrongdoing. If the investment community 
was unaware of any wrongdoing, top management may try to claim the same. For 
instance, Kenneth Lay, former chief executive officer of Enron, claimed he was 
unaware of the criminal behavior in his organization and some may find these 
claims persuasive (Swartz, 2003). While it is difficult to blame a bankmptcy on a 
low-ranking employee, scandals and accidents may be caused by any employee, 
regardless of rank or position in the organization. 

Yet, the management literature does not fully explore shifting stigma to an employee 
who is not upper management. The closest example is found in research on 
whistleblowing (Gundlach et al., 2003; Miceli & Near, 1997; Parmerlee, Near, & 
Jensen, 1982). Gundlach, Douglas, and Martinko (2003) explain how organizations 
may use impression management as a response to the pressures of whistleblowers 
who threaten to expose wrongdoing. While they theorize that such defensive 
impression management may involve shifting perceptions and attributions such 
that organizational blame is mitigated, they do not specifically address the possibility 
of shifting attributions of blame to an employee or, more specifically, to 
the whistleblower. 

Legitimate whistleblowers pose a threat to the organization by revealing information 
that discredits the organization's identity. Since the whistleblower threatens to 
reveal information that spoils the organization's identity, the organizational leaders 
have reason to discredit the individual through retaliation, which may involve 
defamation of character (Parmerlee et al., 1982). The organizational leaders are 
motivated to make the whistleblower appear as either (1) a poor source of information 
or (2) a participant in the wrongdoing. Depending on the circumstances, the 
latter may be possible because whistleblowers possess a certain level of exposure 
to the wrongdoing, and as a result, this necessary proximity to unethical behavior 
may allow the organization to shift blame to the whistleblower. Just as an individual 
may blow the whistle on an innocent organization for reasons of revenge (Miceli 
& Near, 1997; Parmerlee et al., 1982), organization spokespeople may engage in 
reverse whistle blowing for opportunistic reasons, even though the employee is not 
involved in wrongdoing. 

It is also conceivable that innocent employees, with no intention of whistleblowing, 
can be targets of stigma due to their proximity to the wrongdoing. Goffman 


CORPORATE SCANDALS AND SPOILED IDENTITIES

(1963) addresses the process of contaminafion in criminology. He explains, "a 
person wanted for arrest can legally contaminate anyone he is seen with, subjecdng 
them to arrest on suspicion" (1963: 47). The process of criminal contaminadon is 
particularly important when considered in conjuncdon with the organizadon's access 
to informadon regarding the employee. In understanding organizadonal accidents, 
Hoffmann and Stetzer explain, "[t]here are clear parallels between this tendency to 
blame, or use as a scapegoat, the individuals most proximal to an accident, and the 
fundamental attribution error" (1998: 644). The fundamental attribudon error is a 
psychological tendency that causes individuals to overesdmate the effects of individual 
factors and underesdmate situadonal factors when determining the cause of an 
event or behavior (Ross & Anderson, 1982). Those who are close to the wrongdoing 
may be blamed simply because they are available targets for attribufions. 

In the next section, I consider how organizadon spokespeople may shift sdgma 
to an employee by exploiting the informadon asymmetry that exists between the 
organizadon and the employee. 

Exploiting Information Asymmetry 

When a firm experiences a scandal, the organizational audience wants to understand 
what happened, and any information released by the organization, either 
formally or informally, mayfill diis void. Gundlach, Douglas, and Martinko (2003: 
113) explain, "the absence or presence of some account for wrongdoing behavior 
may be more important in exacerbafing or attenuadng its perceived damage than the 
impact of the act itself." Organizadons are well posifioned to formally disseminate 
informadon that protects their idendty because communicadon channels are an 
important aspect of managing identity under normal circumstances. Researchers 
assert that organizadons maintain legidmacy and a posidve organizadonal idendty 
through media communicadon and meefings with consdtuents (Dutton & Dukerich, 
1991; Elsbach, 1994; Elsbach & Kramer, 1996; Scott & Lane, 2000; Sutton 
& Callahan, 1987). 

Most of the whistleblowing literature focuses on the information that employees 
possess about the organizadon and when employees disclose such informadon (Miceli 
& Near, 1997). While some employees may have access to valuable informadon 
regarding organizational operations, organizations possess valuable informadon 
regarding employees, the means to collect new informadon, and the channels for 
disseminadng it. Organizadons not only have access to employee informadon, 
but also serve as the primary source of reference on an employee's character at 
work. The employee, however, is only one source of reference, among many, on 
an organizadon's character. Thus, the organizadon's access to informadon, coupled 
with its role as a primary source of informadon on employee character, creates an 
informadonal asymmetry, which presents significant opportunities when discrediting 
the employee. In this section, I consider the type of employee information 


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an organization possesses and then consider the use of such information when an 
organization is facing a scandal. 

Employee Character 

Assessment of character rehes upon the perceptions and judgments of others. 
In most instances, character claims may only be verified by speaking to those who 
know the individual well. This system of character reference may be viewed as an 
opportunity for significant social influence by those supplying the reference. The 
individual or group supplying character references may shift not only extemal perceptions 
of a focal individual but also how the focal person perceives him or herself. 
For instance, an individual who views him or herself as generous but whom others 
claim is greedy, may falter in his or her own perception of personal character. Empirical 
evidence in psychology suggests that false feedback about performance will 
affect individuals' judgments of their abihties (Elaad, 2003). Given the employees' 
reliance on the organization for reference of character at work,' the organization 
exerts significant social influence in not only extemal reference of character but 
also in employee evaluations of self. 

The longer an employee works for an organization, the more infonnation that 
organization is able to accumulate. An employee of ten years will present the 
organization with more opportunities to collect information on changes in salary, 
performance in work tasks, conflicts with work colleagues, and illnesses than an 
employee who works for an organization briefiy. Even if past employers characterize 
the employee positively, the organization's spokesperson may claim that it is the best 
reference of the employee's current work behavior. The longer the employee has 
worked for the organization, the more convincing the claim. The organization's role 
as an evaluator of an employee's competence puts the organization in an ideal position 
for manipulating how the orgatiization's audience perceives the employee. 

Personal Information 

Organizations also have access to confidential personal information, which adds 
to their ability to shift stigma, if need be, to the employee. In typical employment 
arrangements, organizations receive access to medical records,financial infonnation 
as well as information on previous employment and credentials (Woodman, Ganster, 
Jerome, McCuddy, Tolchinsky, & Fromkin, 1982). This act of disclosure on the part 
of the employee is a requirement to receive salary, benefits and acceptance into the 
organization. The employee completes federal forms for pay, reveals health-related 
information for medical and life insurance, and discloses any criminal convictions. 
Some organizations also require dmg-testing or medical exams. Control over an 
employee's financial information can extend beyond salary when organizations 
partner withfinancial institutions, which provide employees with special resources 
for mortgages, education loans, and car purchases. 

Studies on the use of organizational information and employee privacy provide 
insight into the employee's perspective of the information used by their organiza



CORPORATE SCANDALS AND SPOILED IDENTITIES

don. Woodman et al. (1982) examined the use of employee personal informafion in 
five mulfinadonal corporafions and found that employees underesfimate the amount 
of personal informadon on certain issues, such as medical history, stored by their 
organizadons. Despite this underesdmadon, employees are still concerned about 
the use of informadon, especially disclosures to sources outside the organizadon 
(Woodman et al., 1982). Woodman et al. find "[t]hose outside pardes deemed 
most proper to receive personal informadon from their company were courts with 
subpoenas, local or state governments, and the IRS. However, even here only 56 
percent of the respondents thought it was proper to release informadon to courts 
with subpoenas" (1982: 658). Thus, employees are not in agreement on matters 
regarding the way in which the organization releases personal information, even in 
situadons where subpoenas are issued. Personal employee informadon, however, 
has been misused by organizadons to protect the organizadon's idendty (Elangovan 
& Shapiro, 1998). Kiger reports, "Employers have even been known to ask a 
whistleblower to seek counseling and then use the person's mental health records 
as evidence of instability" (2001: 61). 

Collected Information 

In cases where the organizadon does not possess discredidng informadon, it 
has the resources to hire private investigators and consultants to collect negadve 
personal informadon (Hwang and Gevelin, 1996; Kiger, 2001). For instance, in the 
case of Jeffrey Wigand, the highest-ranking manager to blow the whisde on the 
tobacco industry, his former employer. Brown & Williamson, attacked his character 
in the media and in court. According to Enrich, "the company even publicized 
unsubstandated allegadons of shoplifdng and domesdc abuse from Wigand's past" 
(2001: 70). Brown & Williamson also accused Wigand of flooding the offices of a 
previous employer, scoured his doctoral dissertation for plagiarism, and researched 
all possible inaccuracies on past resumes (Hwang & Gevelin, 1996). 

Corporate Interviews 

Whatever informafion is not available in employeefiles may be obtained for the 
organizadon through employee interviews with corporate lawyers. These interviews 
present a considerable advantage for the organizadon because corporate lawyers can 
exploit employee lack of knowledge regarding the interview process. The employee 
may wrongfully assume that the corporate lawyer is collecting information with the 
intent of protecdng the employee'srights but, in such situafions, the lawyer is acdng 
on behalf of the organizadon. By not fully disclosing the employee's rights to legal 
protecdon when an invesdgadon with corporate attorneys occurs, an employee may 
self-incriminate without understanding his or her right not to do so. 

Even if the lawyer acknowledges the employee's right to representafion before 
the interview begins, social familiarity with the corporate lawyers may cause the 
employee to assume that the reladonship is fiiendly and that the corporate lawyer 
will protect the employee's interest. Experience working alongside the lawyer on 


BUSINESS ETHICS QUARTERLY 

corporate projects may augment a sense that the lawyer is aligned with the interests 
of the employee. Duggin explains how social attachments negatively affect the 
employee in situations of intemal investigations: "The more frequently the lawyer 
has assisted the company with sound advice and offered legal and moral support 
at difficult times, the more likely the interviewee is to talk candidly, almost no 
matter what counsel says" (Duggin 2003: 995). Thus, the employee's relationships 
with those in the organization cause an inappropriately high level of trust that the 
employee's interests are protected. These situations present organizations with rich 
opportunities to gain valuable infonnation for shifting stigma. 

In short, the more time an employee spends with an organization, the more 
organizational social influence the employee will experience, engendering the 
growth of greater social attachments. When the organization suggests that the employee 
receive counseling or meet with corporate lawyers, the employee is likely 
to respond favorably, even when it is in his or her best interest to not follow such 
suggestions. Thus, the organizational leaders have multiple means for transferring 
character stigma by exploiting information asymmetries. In the next section, I 
consider a factor that augments the likelihood that organizations will shift stigma 
to a subset of the organization. 

Contributing Factors 

In the last section, I considered the ways in which organizations exploit information 
asymmetries. In this section, I assert that prosecutorial incentives augment 
the likelihood that an organization will exploit these asymmetries and shift stigma 
to an employee. 

While media communication is important for managing perceptions of investors, 
customers and other stakeholders, an organization's communication with prosecutors 
is critical to the shifting of blame to escape or evade criminal charges. Laufer 
(1999,2002) discusses the practice of "flipping" whereby the organization tums over 
culpable employees in an attempt to mitigate organizational blame. Legal scholars 
note an increase in corporate cooperation with prosecutorial investigations since 
the passing of the U.S. Sentencing Guidelines in 1991, which provide leniency in 
sentencing when organizations demonstrate self-reporting of wrongdoing (Duggin, 
2003; Laufer, 1999, 2002, 2003). This incentive was strengthened with the adoption 
of the 2004 Amendments to the Sentencing Guidelines (Hess, McWhorter, & 
Fort, 2005). 

In order to expedite this shift, the organization may blow the whistle on the 
employee. In the business law literature, Laufer (2002) discusses the process of 
reverse whistleblowing (RWB), whereby the organization blows the whistle on an 
employee as opposed to the typical scenario in which an employee blows the whistle 
on an organization. Laufer (2002) presents two forms of reverse whistleblowing, 
consensual and nonconsensual. The consensual form represents situations in which 
employees agree to be the scapegoat for the organization. Nonconsensual forms of 


CORPORATE SCANDALS AND SPOILED IDENTITIES

reverse whistleblowing involve situafions in which an employee may be associated 
with the wrongdoing but not deserving of full blame. 

A commonly understood form of consensual reverse whistleblowing involves 
organizadonal leaders. Those who hold leadership roles may imphcitly or explicidy 
agree to receive sfigma for organizadonal failures. According to news accounts, 
Andersen's chief execudve, Joseph Berardino, attempted to serve as a target for 
shifting stigma by stepping down from his position with hopes of possibly saving 
the livelihoods of Andersen employees. In an interview, Berardino said, '"We have 
a lot of great people who deserve a career and if my sacrifice helps just a few of 
those, I will feel really good about what I've done today'" (Lou Dobbs Money-
line, 2002). This willingness to accept such responsibility is often reflected in the 
employee's compensadon, which may provide special payments based upon the 
leader's departure from the firm. 

Embedded in the nodon of prosecutorial incendves is the avoidance of harsh 
sentencing and large fines. Following this reasoning, those firms that are unable to 
absorb the largefines possess an added incendve for shifdng blame. Even prior to the 
current legisladve incendves to cooperate with prosecutors, some evidence suggested 
that firms are modvated by financial survival and will use employees to tnidgate 
financial harm. Cohen's empirical study of corporate crime and sentencing suggests 
that a firm's financial standing relates to the shifting of blame to employees, even 
prior to the 1991 Federal Sentencing Guidelines. In a study of sanctioning, Cohen 
empirically tested the relationship between sancdons, crimes and firm attributes. 
Using a sample of 961 convicted organizafions, which were almost all convicted 
firms during the dme period, 1984-1990, Cohen found that firms unable to absorb 
the fines associated with a corporate crime were more likely to have individual 
codefendant convicdons. He explains, "individuals are prosecuted and convicted 
for corporate crimes more often when the corporadon on whose behalf the crime 
was comtnitted cannot afford to compensate for the harm they imposed" (Cohen, 
1996: 409). Furthermore, he found evidence that suggests codefendant convicdons 
were likely to occur in situadons when the corporadon cooperated with the prosecutors. 
He condnues, "[t]he fact that cooperativefirms have higher rates of individual 
codefendant convictions seems to indicate that those firms are willing to let their 
employees shoulder the blame" (Cohen, 1996: 408). Thus, Cohen's interpretadon 
of such behavior is that the organizadon leaders shift blame to employees when the 
financial burden of the crime is high. While Cohen's study does not include data 
on the means of shifdng blame (e.g., informational asymmetry), the information 
regarding the corporadon's cooperation in the data suggests that the corporadon 
was providing the prosecutors with investigative assistance, most likely in the form 
of information. 

Thus far, I have described a process of how sdgma may be shifted in a scandal. 
The quesdon remains, why does this shift matter? I hope to make progress on this 
quesdon in the next secdon. 


BUSINESS ETHICS QUARTERLY 

Moral Considerations 

In this section, I analyze the moral implications associated with shifting stigma 
using a procedural principle presented by Moberg (1994). Moberg, drawing on 
Rawlsian and Kantian theories, asserts that in cases of employee-employee conflict, 
"any settlement that allocates benefits/burdens unequally must be proportional to 
the degree of harm and the responsibility of the parties" (Moberg, 1994: 458). I 
apply Moberg's principle to stigma management, which also involves an allocation 
of burdens, and consider the moral issues that arise from (1) the type of stigma 
generated for the targeted employee, (2) the use of corporate investigations to shift 
stigma, and (3) the corporation's ability to purchase a shift of stigma. 

Stigma Type 

Figure 1 depicts two scenarios, which may occur when an organization is faced 
with the threat of a scandal.^ The first scenario depicts no attempt to shift stigma 
associated with the scandal, while the second scenario depicts a shift of stigma to 
an employee or a subset of the organization through the exploitation of informational 
asymmetries. 

Scenario 1 

Many who express concem about the situations depicted in Scenario 1 often 
comment on the innocent employees who lose their livelihoods when the firm 
fails. These employees, some contend, suffer stigmas for their association with 
their former employer (Ackman, 2005; Hockstader, 2002). Using Goffman's categorization, 
the employee's stigma would constitute a demographic stigma. While 
stigmas may be reversed or redirected, as in the case of Andersen, a shift away from 
the organization can occur too late. For Andersen, the firm's criminal conviction 
was overtumed in 2005 but the decision, as one reporter comments, "is bittersweet 
for many former employees, which number fewer than 200 from the once 85,000 
workers" (GuUapalli, 2005: A6). Situations such as these raise concems regarding 
the need to properly assign responsibility for a stigma because the effects can be 
difficult to reverse. 

Scenario 2 

This scenario involves a shift of stigma away from the organization towards a 
particular subset or individual whereby only the employee targets receive a stigma, 
as they would in Scenario 1. The stigma in these circumstances, however, does not 
stem from an association with a stigmatized group (demographic), but rather, from 
claims regarding employee flaws and misdeeds (character). 

Some may argue that the outcomes for the target are the same in both scenarios 
because regardless of the shift, the target receives a stigma. Researchers, however, 
have documented an important difference between character and demographic 
stigma, which relates to negative outcomes for those who are stigmatized. As 
described at tbe beginning of this article, those who suffer character stigma may 


CORPORATE SCANDALS AND SPOILED IDENTITIES 

Demographic Stigma for all employees 

Organization Loss of . Bankruptcy Organization 
Stigma Business Death 

Scenario 1 

Organization 

Stigma Threat 

Scenario 
2 
Exploit Character Stigma Organization 
Asymmetries for Target(s) only Survival 

Contributing Factors 

Prosecutorial Incentives 

Potential Employee Targets 

Whistleblowers 
Wrongdoers 
Uninvolved Employees 

Figure 1. Two Scenarios for Managing an Organization Stigma Threat 

receive less opportunity for reemployment, less public support, less pity and less 
charity than employees who suffer an uncontrollable demographic stigma (Cannella 
et al., 1995; Crocker et al., 1993; Weiner et al., 1988). Undoubtedly, the worst 
potenfial outcome associated with character sdgma is prosecudon and convicdon 
of a crime. Thus, Scenarios 1 and 2 do not have the same effects for the targeted 
employee because character and demographic sdgmas are associated with different 
outcomes. Applying Moberg's principle, the burden of a character sdgma is only 
appropriate when it matches the target's proportion of responsibility for the scandal. 
Next, I consider how the misuse of corporate interviews may disrupt accurate 
assessments of responsibility. 

Corporate Interviews 

As mendoned earlier, employees may participate in interviews because of social 
attachments with the corporate attomey. Even those employees who fully understand 
the seriousness of an interview with a corporate attomey may sdll feel pressure 
to participate in such an interview without representadon because they fear losing 
employment. If this is the case, nodons of consent are quesdonable. If employees 
either reject offers for personal legal representadon because they are not aware that 
the interview may result in negative consequences or feel some sense of coercion 
resuldng from a desire to maintain employment, there is reason to quesfion whether 


BUSINESS ETHICS QUARTERLY 

the standard for meaningful consent is being met—namely, that consent be fully 

informed and freely given. 

Consent is also an issue for reverse whistleblowing. At first, consensual reverse 
whistleblowing or stigmatization among non-leaders may seem unlikely. It is, 
however, less surprising when one considers the earlier discussion of asymmetrical 
information and the organization's inffuence over the employee's sense of character. 
Warren (2005) explains that, in some situations, individuals do not know organization 
mles or how to apply them. Organizations can exploit this lack of knowledge and 
convince the employee that they are worthy of blame, when they are, in fact, not 
responsible for any wrongdoing. As mentioned earlier, Crocker, Comwell, and Major 
(1993) found that those suffering from controllable character stigmas were more 
likely to experience self-blame and low self-esteem. This psychological tendency 
provides the organization with an opportunity to convince the employee that they 
caused the scandal and encourage reverse whistleblowing. Again, questions of full 
information raise concems about consent when reverse whistleblowing occurs. 

Thus, the misuse of corporate interviews to obtain coerced statements from 
employees can skew the assessment of responsibility and threaten the equitable 
distribution of burdens. To the extent that corporate interviews are poorly executed, 
they provide an opportunity to misdirect assessments of responsibility and the 
subsequent stigma associated with the scandal. 

Purchasing Stigma 

Even if we accept the possibility of fuUy informed, freely given consent to reverse 
whistleblowing, should it occur? Are such shifts of stigma acceptable if employees 
are compensated to offset all negative consequences associated with the stigma? 
Moberg's principle argues for the equitable distribution of burdens based upon actual 
responsibility, not claims of responsibility. But even if we accept employee claims 
of full responsibility, it is not clear that the employee deserves all of the burdens. 
The fact that the problematic behavior occurred within the organization indicates, 
at the very least, a failure of monitoring. This failure is even more apparent when 
one considers the earlier discussion of the organization's access to information. 
Thus, organizations should be held responsible for a lack monitoring of employee 
behavior and therefore deserve some burdens or negative outcomes associated with 
a scandal, even if an employee claims full responsibility. 

Conclusion 

Authors have discussed organizational responses to scandals (Elsbach, 1994; 
Marcus and Goodman, 1991), but they have not done so with a specific focus on 
shifting stigma. Those who study the management of stigma have not done so with 
a specific focus on business scandals (Crocker et al., 1991; Crocker et al., 1993; 
Heilman et al., 1997; Sutton & Callahan, 1987; Weiner et al., 1988). I combine 
these hteratures with the objective of identifying a process of stigma management 


CORPORATE SCANDALS AND SPOILED IDENTITIES

that involves shifdng organizadon sdgma associated with a scandal to an employee 
or subset of the organizadon. By identifying this process, I hope to draw attendon 
to the moral implicadons of shifdng sdgma to employees and suggest future direcdons 
for research. 

Recent legisladve changes emphasizing corporate cooperadon most likely will 
only enhance this exisdng corporate motivadon to shift sdgma and the system 
will become more efficient at prosecudon but possibly less just (Duggin, 2003). 
Organizadon self-reporfing of intemal wrongdoing lessens or midgates the organizadonal 
sancdons but, as legal scholars note, possibly threatens the protecdon of 
individual employees' rights (Duggin, 2003; Laufer, 1999,2002). Duggin explains, 
"the govemment effecdvely is depudzing 'Corporate America' as an arm of law 
enforcement at the expense of principles that lie at the core of our adversarial 
system of jusdce" (Duggin, 2003: 907). Even though lawyers may be encouraged 
to inform employees of their rights, delivery of this informadon can raise issues. 
How do we devise a system that does not overlook the obligadons of firms to protect 
the rights of employees during a fime when large incenfives exist to violate 
them? Financially ailing firms rely upon bankruptcy protecfion to reorganize their 
business with hopes of retuming as a healthy, profitable organization. We do not 
offer a similar mechanism to save organizadons facing scandals. Should there be 
an analogous program to prevent moral bankruptcy? Such a program would provide 
organizations and prosecutors a chance to invesdgate and appropriately direct 
blame without compromising anyone's rights or acting on the pure modvafion of 
organizadonal survival. Incendves currently exist that promote corporate cooperadon 
with prosecudon but what is glaringly absent is the incendve to fairly direct 
blame towards a deserving party. In other words, there are legislative incentives to 
be fast but not necessarily accurate. At the very least, some sort of outside counsel 
is needed for employees during corporate investigadons. 

As a final note on a study measuring the effecdveness of andcipatory impression 
management in managing audience reacdons to hospital billing, Elsbach et 
al. explain that 

[tjhese data suggest that organizations may use anticipatory impression management 
to avoid accountability and responsibility for tbeir actions. Impression 
managers employing the tactics described in this paper may divert attention 
from illegitimate or immoral actions, and elude public calls for accountability 
for those acdons. (Elsbach et al., 1998: 84) 

The ending of this research article should serve as the beginning of a research 
agenda on the moral implicadons regarding sdgma management during scandals. 
It is difficult to know to what degree organizations successfully shift stigma away 
from the organizadon to the employee, but a rise in employee, rather than organizadonal, 
prosecudon would lend support to this shift. Future research should 
focus on organizadonal and legal intervendons that prevent the wrongful shift of 
organizadonal stigma to employees. 


BUSINESS ETHICS QUARTERLY 

Notes 

1. I am not referring to specific letters of reference written by employers but rather employers 
acting as general sources of information. 
2. This model is not meant to be predictive or exhaustive but to serve as a visual aid for 
discussing moral implications of shifting stigma. 
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