HENRICH R. GREVE
  • Home
  • Research
    • Diffusion articles
    • Institutional Legacies
  • Journals
  • Media
  • Blog
  • Q&A

Organizational musings

My Kind of Fraudster: How Social Group Affects Responses to Misconduct

2/25/2017

0 Comments

 
Picture
​We know that shared identity is a tool used to gain the confidence of people before defrauding them, and we suspect that it works especially well for an identity strengthened by current discrimination or a history of persecution. Bernard Madoff’s exploitation of the Jewish identity to recruit for his Ponzi scheme is a recent example of how this is done, and many more cases exist. An interesting follow-up question has rarely been considered, though: what happens to the identity after the fraud has been discovered?
 
In a very creative and solid piece of research, Christopher Yenkey explores this issue in Administrative Science Quarterly. His case is one of a stock brokerage in Nairobi that defrauded one-quarter of its clients (about 25,000 people). The clients were from many ethnic groups, and the brokerage was clearly identified with one of them. This is a dilemma for members of the defrauding (and also defrauded) ethnic group: who should they trust, and how much? For those not part of the defrauding group, the choice is easier: after the fraud, they trusted the group affiliated with the brokerage less, and trusted the institution of stock brokerages less, so they invested less than they had previously.  This effect was strongest for ethnic groups that were rivals of the ethnic group connected with the fraud, as opposed to neutral ethnic groups.
 
But what about members of the ethnic group associated with the fraudulent brokerage who had been personally defrauded? They made interesting choices. Like everyone else, they invested less following the fraud—but still more than neutrals, and definitely more than rivals. Shared ethnicity cushioned the blow of the fraud. In a very promising investment opportunity that happened soon after the fraud, those with shared ethnicity who had been defrauded invested more than the others, suggesting that they may have been most confident about trying to recover their lost money through investments.
 
The investors of different ethnicities also showed other reactions to the fraud, such as starting to doubt brokerages and placing more investments through banks, which could also act as stock market intermediaries. Naturally the choice between organizational forms is not as personal as the choice of ethnicity to transact with, so the movement away from brokerages was seen for all ethnic groups. Still, it was again the rival ethnic groups that moved the most, suggesting that the experience of being defrauded had the biggest impact on their future actions.
 
Trust is personal, which is why social groups can make it easier. Fraud is also a very personal experience, and affront, and reactions to it show very clearly how boundaries in our society affect people’s responses to each other and to organizations.
 
PS: I chose not to mention the name of the ethnic group controlling the fraudulent brokerage in this post. Kenya is a place where ethnic relations are sensitive because of power differences and a history that involves violent events as well as periods of peace.
 
Yenkey, Christopher B. 2017. Fraud and Market Participation: Social Relations as a Moderator of Organizational Misconduct. Administrative Science Quarterly, forthcoming.

0 Comments



Leave a Reply.

    Blog's objective

    This blog is devoted to discussions of how events in the news illustrate organizational research and can be explained by organizational theory. It is only updated when I have time to spare.

    Archives

    December 2020
    November 2020
    October 2020
    August 2020
    July 2020
    June 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    October 2019
    September 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    December 2017
    November 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    March 2016
    August 2015
    July 2015
    December 2014

    Categories

    All

    RSS Feed

Proudly powered by Weebly
Photo used under Creative Commons from pixelmattic
  • Home
  • Research
    • Diffusion articles
    • Institutional Legacies
  • Journals
  • Media
  • Blog
  • Q&A