Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Business

Supervisor

Dr. W. Glenn Rowe

Abstract

Illegal corporate activity, including the price fixing activity of two or more firms through cartels, costs the global economy billions of dollars a year, yet its causes are neither well studied nor well understood in organizational literature. This thesis explores possible external and internal antecedents of illegal cartel activity through the management lenses of resource dependency theory and agency theory and the criminological theory of anomie in the examination of the research question “Why do corporations engage in illegal activity?” I posit that illegal international cartel activity is influenced by the environment in which the organization finds itself, moderated by corporate governance mechanisms of the firm, namely Board scanning. In tandem, I consider potential internal drivers of illicit corporate behaviour, suggesting that illegal activity, undertaken as a result of a gap between organizational goals and the inability to achieve them through legal means (anomie), is impacted by the control mechanisms that the owners of corporations and their agents impose on the CEO and managers of the organization.

I explore these proposed antecedents of illegal cartel activity both quantitatively and qualitatively. For the quantitative analysis, I create a matched sample of 296 observations of international firms, covering illegal cartel activity that spans 40 years drawn from a proprietary database containing information on all known international cartels from 1990 to 2008. The qualitative analysis includes first-person, semi-structured interviews with international experts in the area of illegal cartel activity. I take a realist approach, comparing the interview data obtained from each individual with responses elicited from other interviewees, linking the qualitative data directly to the constructs used in the quantitative data analysis.

I find support in the environmental analysis for the Board scanning moderated effects of industry profits and dynamism on illegal cartel activity. The analysis of the internal variables demonstrate that while Board level variables such as control method and percentage of outside directors predict illegal corporate activity and CEO control methods, CEO level variables do not predict illegal corporate activity, nor do they mediate Board control as it pertains to illegal corporate activity.

My research highlights the impact of the scanning and control mechanisms at the highest levels of the organization on illegal corporate behaviour. In so doing, I find that the influence of the Board on the organization’s environment is subtle, yet palpable and produces within the organization the conditions where innovation to achieve the perceived wants of the shareholders is implicitly encouraged. I put forward this research as a first step in considering illegal corporate activity in a way that encompasses external influences and internal organizational control mechanisms in a new and innovative manner and as a tool to help both researchers and practitioners better understand how organizational deviance, as manifested through illegal corporate activity, can be prevented.

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