Do Better Organizations Invite More Incidents? The Compliance Distortions Born of Complexity

The notion that “better organizations don’t cause scandals” seems self-evident at first glance. A company that attracts top talent and delivers strong results presumably has the resources to build robust internal controls, and so appears to stand far removed from crisis. Yet in reality, organizations with high social standing have repeatedly caused major scandals. Toshiba, Fuji Television, and Nidec at home, or Uber and Enron abroad, are textbook examples.

Why do “good organizations” end up inviting incidents? Behind this lies a problem known in academic terms as institutional complexity. Organizations are required to satisfy multiple definitions of “rightness” at the same time. On one hand there are economic demands—turn a profit, grow, increase shareholder value. On the other hand there are compliance demands—be ethical, be transparent, obey the law. The trouble is that these are not always qualitatively compatible.

Take Uber, which in 2017 faced a harassment scandal that led to dozens of dismissals and ultimately the resignation of its then-CEO. Internally, the results-driven culture fueling the company’s rapid growth had been pushed to an extreme, and an aggressively competitive ethos had become entrenched throughout the organization. In an environment where high performers are celebrated, a degree of problematic behavior tends to be overlooked as a side effect of “excellence.” In other words, economic “goodness” had trampled ethical “goodness.”

In fact, research shows that higher-performing companies are actually more prone to illegal conduct. The crucial point is that misconduct is not driven by poor performance; rather, it is high expectations that induce wrongdoing. An organization perpetually pressed for results by markets, investors, and the media cannot afford to disappoint those expectations. Acts that would normally be impermissible then begin to be justified as “necessary to sustain those expectations.”

What makes this more insidious is that such distortions appear perfectly rational from inside the organization. So long as high performance and external expectations are being met, the feeling that “we are heading in the right direction” is reinforced. Outside criticism and warnings are easily dismissed as “idealistic talk from people who don’t understand the front lines.” Crisis can emerge not only from corrupt organizations but, if anything, from within organizations that carry a strong record of success.

The crisis of an organization, then, is not merely a lack of morality. It also arises, in part, from the organization being torn apart between competing demands. Pursuing profit and fulfilling social responsibility are both legitimate aims for the modern enterprise. But when these “two rightnesses” collide, organizations often tip toward crisis.

This is precisely why understanding crisis solely as “the failure of a bad organization” is insufficient. On the contrary, there are contradictions that a good organization inevitably harbors because it is good—and when an organization continues to succeed without ever recognizing those contradictions, crisis grows quietly within.

The Ethics Paradox: How Transparency and Harsher Punishment Increase Misconduct

In debates over organizational crisis—compliance debates above all—we often hear calls to “raise transparency further” or claims that “stricter punishment will eliminate misconduct.” Intuitively, these seem correct. Tighten surveillance, enforce the rules rigorously, punish violators severely, and wrongdoing should decline. That is the reasoning.

Yet recent research points to the possibility that pushing ethics too hard can, paradoxically, increase misconduct and crisis. This is the ethics paradox.

The argument runs as follows: clarity of ethical norms and transparency do function as a deterrent to misconduct—up to a certain threshold. Beyond that point, however, a tendency for misconduct to rise was observed. When the atmosphere of “we must never be wrong” grows too strong inside an organization, even trivial matters come to be perceived as misconduct or error.

A school makes the point easy to grasp. At an extremely strict school, even minor incidents are treated as serious problems, and the number of reported incidents climbs. At a lax school, by contrast, problems never surface, so on the surface things may look “peaceful.” In other words, a high count of incidents does not directly equate to how corrupt an organization is.

Furthermore, excessive ethical demands breed inhibition within the organization. In an environment where the slightest misstep invites condemnation, people stop debating freely. As a result, the “truly dangerous problems” cease to come to light. What was meant to raise transparency ends up producing silence instead.

This overlaps with the call-out culture of the social-media age. In contemporary society, organizations tend to be held to a standard of “complete ethical perfection.” But real organizations, run by human beings, cannot avoid imperfection. That is exactly why crisis response matters as much as crisis prevention—yet if you build an environment that tolerates not even the slightest deviation, people come to fear acknowledging problems at all.

The key point is that “being ethical” and “maximizing ethics” are not the same thing. An organization needs margins where problems can be raised and the flexibility to correct mistakes. As the saying goes, “where the water is too clear, no fish can live”—an organization, too, loses its sustainability if it becomes obsessively pure.

What is needed to prevent crisis is not simple escalation of punishment. It is, rather, cultivating an organizational culture that recognizes problems early and can handle them while they remain repairable.

How “Letting Things Slide” Renders Incidents Invisible: Oversight Born of Everyday Rationality

Organizational incident does not necessarily arise from “someone’s malice.” In most cases, it is the accumulation of rational behavior—the everyday effort to keep operations running smoothly—that ends up rendering crisis invisible and letting it grow.

A prime example is the behavior known as letting things slide (yari-sugoshi). This refers to the organizational practice of declining to actively address troublesome or intractable issues and instead waiting for time to pass.

At first glance this may look like an irresponsible attitude. But in any real organization, confronting every single problem head-on is impossible. Meetings, complaints, instructions from superiors, sudden incidents—amid the daily flood of tasks, organizations keep operations running on limited resources. So the front line develops the skill of letting “problems that don’t need to be handled right now” flow by in measured amounts.

Actual research, too, shows that letting things slide is practiced routinely at many companies. And, in fact, organizations function reasonably well because of it. If they reacted to every problem, they would seize up under the overload.

This rational behavior, however, can become a serious weakness in crisis response. In an organization where a culture of “putting things off” and “waiting and seeing” has taken hold as routine, even the warning signs of a grave crisis get processed in the very same way.

Especially dangerous are problems whose causes are ambiguous and which span multiple departments. A study analyzing automobile-recall problems showed cases where, even though a complaint-handling system was in place, identifying the cause took time, interdepartmental coordination never came together, and the problem was left unaddressed.

What happens here is not simple negligence. Rather, rational judgments made to keep ordinary operations going obstruct the visibility of crisis. No one is deliberately covering anything up; through an unbroken chain of judgments—”we’re busy right now,” “it isn’t confirmed yet,” “let’s watch it a bit longer”—the crisis is gradually rendered invisible.

And the organization, curiously, keeps running anyway. That is precisely why the crisis goes unrecognized until it becomes severe.

When we hear “crisis management,” we tend to picture special, emergency-time responses. In reality, however, the single greatest factor producing crisis may be the rationality of normal times itself. The very wisdom that makes an organization efficient is, at the same time, making its crises invisible.

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Reference: Funatsu, S., & Nomura, K. (2025). If an Organization Becomes Good, Will Bad Things Stop Happening? The Theoretical Background of Organizational Crisis Response. MMRC Discussion Paper Series, (575), 1–14.