Chapter Six White-Collar Crime and the Business CommunityAmids.docx

Chapter Six White-Collar Crime and the Business Community
Amidst the turmoil and fallout of the Enron scandal that led to
the company’s declaration of bankruptcy, a number of former
Enron officials faced charges for various offenses. One such
official was former CEO Jeffrey Skilling, who was ultimately
found guilty of 19 fraud related charges, including conspiracy,
insider trading, securities fraud, and making false statements to
auditors. As punishment for his misdeeds, the 52-year-old
Skilling was sentenced in 2006 to 24 years and 4 months in a
federal prison. In addition, he was fined $45 million, which was
to be put into a fund to benefit those who had been harmed by
Enron’s collapse. While serving his sentence in 2010, he won a
minor victory when the U.S. Supreme Court found that
instructions to the jury with respect to one of the charges were
inaccurate, and threw out the conviction on that charge. The
case was then sent back to the trial court judge to determine
whether the inaccurate instructions regarding the one charge
tainted the convictions on the other charges. In 2013, the case
was finally resolved as he was resentenced to 14 years in a
federal prison as part of a court ordered reduction and a
separate plea agreement with the prosecution. Unfortunately,
this story is just one of many recent large and complex white-
collar crime scandals. During 2009, Internet crime resulted in
losses in the United States of $559.7 million, more than two
times as much as in 2008.1 At the end of 2008, the FBI was
investigating 545 corporate fraud cases each of which involved
investor losses that exceeded $1 billion.2 The Coalition Against
Insurance Fraud reports that insurance fraud costs Americans
more than $80 billion per year.3
1 Internet Crime Complaint Center, IC3 Annual Internet Crime
Report 2009; retrieved May 10, 2010, from National White
Collar Crime Center, http://www.nw3c.org/research/site_files
.cfm?fileid=d1991bea-8a22-4e54-82f5-678d4d83581a&mode=r.

2 Federal Bureau of Investigation, Financial Crimes Report to
the Public Fiscal Year 2008; retrieved May 10, 2010,
from http://www.fbi.gov/publications/financial/fcs_report2008/f
inancial_crime_2008.htm#health.
3 Coalition Against Insurance Fraud, “Consumer Information.”
Accessed May 10, 2010 at http://www
.insurancefraud.org/fraud_backgrounder.htm.
White-collar crimes—crimes committed in a commercial
context—occur every day. Collectively, these crimes often
result in millions of dollars of damages. In recent years, as
corporate crimes such as the ones detailed in Exhibit 6-1
Allen Stanford. Sentence: 110 years
Allen Stanford, 63, was a Texan financier accused of running a
$7 billion Ponzi scheme. He had investors invest billions of
dollars into his bank, and then spent the money on private jets,
yachts, and acres of undeveloped Antiguan land among other
expenditures. In December 2008, Stanford International Bank
had $88 million in cash, but it fudged its numbers to say it had
$1 billion in assets. In the same month it finally owed investors
$7 billion when they tried to pull out their money, and the bank
had no money to cover the costs.
In 2012, a jury found Stanford guilty of conspiracy, along with
12 other criminal charges including obstruction. He was found
innocent of one wire fraud charge. Stanford was sentenced to
110 years in federal prison.
Bernard Madoff, Businessman. Sentence: 150 years
Madoff, 72, directed one of the largest Ponzi schemes in U.S.
history. Madoff, in his role as CEO of Bernard L. Madoff
Investment Securities LLC, stole from his clients in a $65
billion Ponzi scheme. Despite a continuing decline in the
economy, Madoff continued to assure his clients that his
numbers (investment returns) would continue rising. As the
economy continued to decline, Madoff's increases became
suspicious and clients began to contact him to get their money
back. When the requests for returned funds reached $7 billion,
Madoff met with his sons and told them that his business was

fraudulent. The sons turned Madoff in to the authorities.
In 2009, Madoff pleaded guilty to, among other things,
securities fraud, wire fraud, money laundering, making false
filings with the SEC, and making false statements. He was
sentenced to the maximum 150 years in prison for his offenses.
His projected release date is November 14, 2159. Since
Madoff's plea, David Friehling from his accounting department
has pled guilty to securities fraud, investment advisor fraud,
and making false filings with the SEC. Additionally, Frank
DiPascali has pled guilty to securities fraud, investment advisor
fraud, mail fraud, wire fraud, income tax evasion, international
money laundering, falsifying books and records, and more.
Joseph Nacchio. Sentence: 6 years
Joseph Nacchio, 60, was the chief financial officer and
chairman of the board for Qwest Communications International.
Qwest is a telecommunications provider in the western United
States. When the economy began to decline, Nacchio continued
to assure Wall Street that the company would continue making
large returns even though he knew that such returns would not
occur. Based on inside information, Nacchio sold $52 million of
Qwest stock just before the prices fell.
In 2007, Nacchio was convicted on 19 counts of insider trading
and sentenced to 6 years in federal prison. Additionally,
Nacchio was ordered to pay a $19 million fine and restitution of
the $52 million he had made as a result of illegal stock
transactions. Although his conviction was overturned in 2008
because of improperly excluded expert testimony, the
conviction was reinstated in 2009 when he finally began serving
his six-year term.
Jamie Olis, Vice President of Finance. Sentence: 24 years
Jamie Olis, 38, was vice president of finance and senior director
of tax planning at Dynergy, a natural gas energy company. Olis
attempted to conceal more than $300 million in company debt
from public investors. When the attempted concealment was
discovered, millions of investor dollars were lost, including a
$105 million loss suffered by 13,000 participants in the

California Retirement Plan.
In 2004, Olis was sentenced to 292 months in prison after being
convicted of securities fraud, mail fraud, and three counts of
wire fraud. The 24-year sentence is one of the longest terms for
fraud in U.S. history, in part because of the large financial
losses to thousands of investors. In addition to the jail time,
Olis was fined $25,000. Olis, however, did not act alone in the
concealment. Gene Foster and Helen Sharkey, both former
Dynergy executives, pled guilty to conspiracy and aided in the
investigation. They then entered into a plea bargain under which
Foster and Sharkey were to receive sentences of up to 5 years in
prison and $250,000 in fines.
Richard Scrushy, CEO of HealthSouth. Sentence: Almost 10
years
Richard Scrushy, the founder of HealthSouth, is no stranger to
white-collar criminal allegations. After being acquitted of
charges under the Sarbanes-Oxley Act for lack of evidence in
2005, Scrushy was indicted on new charges a mere four months
later. The new charges were for bribery and mail fraud linked to
former Alabama Governor Don Siegelman.
The charges involved fraud through exchanging campaign funds
for political favors.
Scrushy was ultimately found guilty by a federal jury in 2006
for bribery, mail fraud, and obstruction of justice. He was
sentenced in 2007 to almost 10 years' imprisonment, in addition
to having to pay a fine of $150,000 and an additional $267,000
in restitution to the United Way. Scrushy is currently in jail.
Walter Forbes, CEO of Cendant Corporation. Sentence: 17 years
and 7 months
In 2004, Walter Forbes went on trial for fraudulently inflating
the company's revenue by $500 million to increase its stock
price. Forbes was charged with wire fraud, mail fraud,
conspiracy, and securities fraud. In addition, Forbes was also
accused of insider trading of $11 million in Cendant stock only
weeks before the accounting scandal was discovered The former
vice president was also charged with similar crimes. The

Cendant CFO testified against both the vice president and
Forbes, saying that he was asked to be “creative” in
reorganizing revenue.
Despite his persistent use of the “dumb CEO defense” (I did not
know about the wrongdoing), Forbes was found guilty in his
third trial, which lasted all of 17 days. In January 2007, Forbes
was sentenced to 12 years and 7 months in fed eral prison. He
was also required to pay $3.275 billion in restitution.
Kenneth Lay, CEO of Enron.
In 2004, Kenneth Lay went on trial, pleading not guilty to 11
felony counts, including wire fraud, bank fraud, securities
fraud, and conspiracy, for his part in falsifying Enron's
financial reports, and denying that he profited enormously from
his fraudulent acts. The extent of the fraud was discovered when
the energy company went bankrupt in late 2001. As a result of
the accounting fraud, Enron's stock plummeted, leaving
thousands of people with near-worthless stock, hitting
retirement funds especially hard.
The Securities and Exchange Commission also filed a civil
complaint against Lay, which could have led to more than $90
million in penalties and fines. Lay was accused of selling large
amounts of stock at artificially high prices, resulting in an ille
gal profit of $90 million.
On May 25, 2006, Lay was found guilty of 10 of the 11 counts
against him. Each count carried a maximum 5- to 10-year
sentence, which would have amounted to 50 to 100 years
maximum, with most commentators predicting a 20- to 30-year
sentence. On July 5, 2006, however, Lay died of a heart attack
before the scheduled date of his sentencing. Due to his death,
the federal judge for the Fifth Circuit, pursuant to Fifth Circuit
precedent, abated Lay's sentence. The abatement made it as if
Lay had never been indicted.
Bernie Ebbers, CEO of WorldCom. Sentence: 25 years
In 2004, Bernie Ebbers, former CEO of the bankrupt phone
company WorldCom, pleaded not guilty to three counts of fraud
and conspiracy. The accounting fraud, which involved hiding

expenses and inflating revenue reports, left $11 billion in debt
at the time of the bankruptcy. The former CFO of WorldCom,
Scott Sullivan, pleaded guilty to fraud and agreed to assist in
the prosecution of Ebbers. Sullivan faced up to 25 years in
prison for his role in the accounting scandal. In addition, MCI
sued Ebbers to recover more than $400 million in loans that he
took from WorldCom, now called MCI.
Bernie Ebbers, in one of the longest prison sentences given to a
former CEO for white- collar crimes, was sentenced in 2005 to a
25-year prison term in a federal prison. Ebbers, 63 years old at
the time of his sentencing, began serving his term in federal
prison in 2006.
Dennis Kozlowski, CEO of Tyco International. Sentence: 8
years and 4 months to 25 years
In a second trial in early 2005 after a mistrial, Dennis
Kozlowski faced charges of corruption and larceny for stealing
more than $600 million from Tyco International and failing to
pay more than $1 million in federal taxes. Kozlowski had Tyco
pay for such over-the-top expenses as a $15,000 umbrella holder
and a $2,200 garbage can. Kozlowski's sentence could have
been up to 30 years in prison.
Kozlowski, as well as former Tyco CFO Mark Swartz. was
sentenced to 8 years and 4 months to 25 years. Unlike other
CEOs convicted for white-collar crimes, such as Bernie Ebbers,
Kozlowski was convicted in state court. In addition to his prison
sentence, to be served in a New York state prison, Kozlowski,
with Swartz, was also ordered to pay $134 million to Tyco. In
addition, Kozlowski was also fined an additional $70 million.
Kozlowski is currently serving his term in prison.Exhibit 6-
1 Recent Major White-Collar Crime Sentences
Critical Thinking About The Law
Why should we be concerned about white-collar crime? You can
use the following critical thinking questions to help guide your
thinking about white-collar crime as you study this chapter.
1. As a future business manager, you may be forced to make
tough decisions regarding white-collar crime. Imagine that you

discover that one of your employees planned to offer a bribe to
an agent from the Environmental Protection Agency to prevent
your company from being fined. Although the result of the
potential bribe could greatly benefit your company, you know
that the bribe is illegal. What conflicting ethical norms are
involved in your decision?
Clue: Review the list of ethical norms offered in Chapter 1.
2. White-collar crime is typically not violent crime. Therefore,
many people assume that street crime is more serious and
should receive harsher punishment. Can you generate some
reasons why that assumption is false? Why might white-collar
crimes deserve more severe sentences?
Clue: Reread the introductory paragraphs that provide
information about white-collar crime. Why might a business
manager deserve a more severe sentence than a young woman
who commits a robbery? What are the consequences of both
actions? Think about white-collar crime against this background
as you study this chapter.
3. If a judge strongly valued justice, do you think he or she
would give a lighter sentence to a business manager who
embezzled $50,000 than to a person who robbed a bank of
$50,000? Why?
Clue: Think about the definitions of justice offered
in Chapter 1.
become more publicized, people’s attitudes toward corporations
and white- collar crime are being affected.
The future manager must be prepared to respond to a growing
lack of public confidence and avoid becoming a corporate
criminal. He or she must find ways to develop a corporate
climate that discourages, not encourages, the commission of
white-collar crime. This chapter will help readers prepare to
face the challenges posed by corporate crime. The first section
defines crime and briefly explains criminal procedure. Next, the
factors that distinguish corporate crime from street crime are
discussed. The third section explains in detail some of the more
common white-collar crimes. The fourth section introduces

some ideas on how we can reduce the incidence of white-collar
crime. The fifth and sixth sections discuss the federal and state
responses to white-collar crime. The chapter closes with an
overview of the international dimensions of white-collar crime.
Crime and Criminal Procedure
Crime
Criminal law is designed to punish an offender for causing harm
to the public health, safety, or morals. Criminal laws prohibit
certain actions and specify the range of punishments for such
conduct. The proscribed conduct generally includes a
description of both a wrongful behavior (an act or failure to act
where one has a duty to do so) and a wrongful intent or state of
mind. The legal term for wrongful intent is mens rea (guilty
mind). An extremely limited number of crimes do not
require mens rea. These crimes are the “strict liability,” or
regulatory, crimes. They typically occur in heavily regulated
industries and arise when a regulation has been violated.
Regulatory crimes are created when the legislature decides that
the need to protect the public outweighs the traditional
requirement of mens rea. Because of the absence of the mens
rea requirement for regulatory crimes, punishment for their
violation is generally less severe than it is for wrongful
behavior. In some states, punishment is limited to fines.
Crimes are generally classified as treason, felony, misdemeanor,
or petty crime on the basis of the seriousness of the
offense. Treason is engaging in war against the United States or
giving aid or comfort to its enemies. include serious crimes
such as murder or rape; felonies are punishable by death or
imprisonment in a penitentiary. Defendants charged with a
felony are entitled to a jury trial. , which are considered less
serious crimes, are punishable by a fine or by imprisonment of
less than a year in a local jail. Examples of misdemeanors
include assault (a threat to injure someone) and disorderly
conduct. In most states, are considered a subcategory of
misdemeanors; they are usually punishable by a fine or
incarceration for six months or less. A building code violation

is an example of a petty crime. The statute defining the crime
generally states whether it is a felony, misdemeanor, or petty
crime. The more serious the offense, the greater the stigma that
attaches to the criminal.
felony
A serious crime that is punishable by death or imprisonment in
a penitentiary.
misdemeanor
A crime that is less serious than a felony and is punishable by
fine or imprisonment in a local jail.
petty crime
A minor crime punishable under federal statutes, by fine or
incarceration of no more than six months.
Criminal Procedure
Criminal proceedings are initiated somewhat differently from
civil proceedings. The procedures may vary slightly from state
to state, but usually the case begins with an of the defendant.
The police must, in almost all cases, obtain an arrest warrant
before arresting the defendant and taking him or her into
custody. A magistrate (the lowest-ranking judicial official) will
issue the arrest warrant when there is probable cause to believe
that the suspect committed the crime. A magistrate is a public
official who has the power to issue warrants; he or she is the
lowest-ranking judicial official. exists if it appears likely, from
the available facts and circumstances, that the defendant
committed the crime. An arrest may be made by a police officer
without a warrant, but only if probable cause exists and there is
no time to secure a warrant. An arrest without a warrant is most
commonly made when police are called to the scene of a crime
and catch the suspect committing the crime or fleeing from the
scene.
arrest
To seize and hold under the authority of the law.
probable cause
The reasonable inference from the available facts and
circumstances that the suspect committed the crime.

The Miranda Warnings
At the time of the arrest, the suspect must be informed of her or
his legal rights. These rights are referred to as the , because
they were developed in response to the Supreme Court’s
decision in Miranda v. Arizona. If the defendant is not informed
of these rights, any statements the defendant makes at the time
of the arrest will be inadmissible at the defendant’s trial. These
rights are listed in Exhibit6-2.
384 U.S. 436 (1966).
Before any questioning by authorities, the following statements
must be made to the defendant:
1. "You have the right to remain silent and refuse to answer any
questions."
2. "Anything you say may be used against you in a court of
law."
3. "You have the right to consult an attorney before speaking to
the police and have an attorney present during any questioning
now or in the future."
4. "If you cannot afford an attorney, one will be appointed for
you before the questioning begins."
5. "If you do not have an attorney available, you have the right
to remain silent until you have had an opportunity to consult
with one."
6. "Now that I have advised you of your rights, are you willing
to answer any questions without an attorney present?"
Exhibit 6-2 The Miranda Warnings
Miranda rights
Certain legal rights—such as the right to remain silent to avoid
self-incrimination and the right to an attorney—that a suspect
must be immediately informed of upon arrest.
Despite the courts’ effort to create an “objective rule to give
clear guidance to the police,” many arrests and interrogations
create significant questions about the application of the Miranda
warnings. In 2004 alone, the Supreme Court issued three
separate decisions clarifying the application and use of the
Miranda warnings. In United States v. Patane, the Court held

that physical evidence found through statements made without
receipt of the Miranda warnings were admissible in court so
long as those statements were not forced by the police; the
incriminating statements, however, would not be admissible.
124 S. Ct. 2620 (2004).
In Missouri v. Seibert, the Supreme Court found that a
confession made after the Miranda warnings were given could
not be admissible if the police first ask for the confession, then
give the Miranda warnings and ask for the same confession.
Delivering the opinion of the Court, Justice Souter wrote,
“Miranda addressed interrogation practices. . . likely . . . to
disable [an individual] from making a free and rational choice”
about speaking, and held that a suspect must be “adequately and
effectively” advised of the choice the Constitution guarantees.
“The object of question-first is to render Miranda warnings
ineffective by waiting for a particularly opportune time to give
them, after the suspect has already confessed.”
124 S. Ct. 2601 (2004).
Finally, in Yarborough v. Alvarado, the Court examined the
ambiguity of when a person is “in custody” and, therefore, is
entitled to the Miranda warnings. The “in custody” standard is
whether a reasonable person would feel free to leave or end
questioning. Such a standard, however, can be influenced by a
person’s age and education. Nevertheless, the Court held that
maintaining a clear and objective standard for police is of
utmost importance, and noted that considerations of age and
education “could be viewed as creating a subjective inquiry.”
The Court found that the confession of guilt to police by
Alvarado, age 17, during an interview was admissible even
though he had not been read his Miranda warnings, because he
was never “in custody.”
124 S. Ct. 2140 (2004).
Hundreds of cases have sought to clarify the Miranda warnings
since they were first created in 1966 in Miranda v. Arizona. The
cases just discussed suggest the importance the judicial system
places on informing suspects of their constitutional rights and

privileges.
384 U.S. 436 (1966).
Applying the Facts of the Case . .
Adrienne was caught on camera robbing a gas station. Thus, the
local police had probable cause and arrested her. Detective Joe
walked up to Adrienne’s house, cuffed her, told her she was
being arrested and began to question her about her whereabouts
on the night of the theft. What part of the arrest process is
missing from this scenario? Why is it important?
Booking and First Appearance
After the defendant has been arrested, he or she is taken to the
police station for booking, the filing of criminal charges against
the defendant. The arresting officer then files a criminal
complaint against the defendant. Shortly after the complaint is
filed, the defendant makes his or her before a magistrate. At
this time, the magistrate determines whether there was probable
cause for the arrest. If there was not, the suspect is set free and
the case is dismissed.
first appearance
Appearance of the defendant before a magistrate, who
determines whether there was probable cause for the arrest.
If the offense is a minor one, and the defendant pleads guilty,
the magistrate may accept the guilty plea and sentence the
defendant. Most defendants, however, maintain their innocence.
The magistrate will make sure that the defendant has a lawyer;
if the defendant is indigent, the court will appoint a lawyer for
him or her. The magistrate also sets bail at this time. is an
amount of money that is paid to the court to ensure that the
defendant will return for trial. In some cases, especially in
white-collar crimes, if the magistrate believes that the defendant
has such “ties to the community” that he or she will not try to
flee the area to avoid prosecution, the defendant may be
released without posting bail. In such cases, the defendant is
said to be released “on his [or her] own recognizance.”
bail
An amount of money the defendant pays to the court upon

release from custody as security that he or she will return for
trial.
Information or Indictment
If the crime is a misdemeanor, the next step is the prosecutor’s
issuance of an , a formal written accusation or charge. The
information is usually issued only after the prosecutor has
presented the facts to a magistrate who believes that the
prosecution has sufficient grounds to bring the case.
information
A formal written accusation in a misdemeanor case.
In felony cases, the process begins with the prosecutor (the
prosecuting officer representing the United States or the state)
presenting the facts surrounding the crime to a grand jury, a
group of individuals under oath who determine whether to
charge the defendant with a crime. The grand jury has the power
to subpoena witnesses and require them to produce documents
and tangible evidence. If the grand jury is convinced, by a
preponderance of the evidence, that there is reason to believe
the defendant may have committed the crime, an indictment (a
formal, written accusation) is issued against the defendant. A
grand jury does not make a finding of guilt; it simply decides
whether there is enough evidence that the defendant committed
the crime to justify bringing the defendant to trial. Government
resources are limited, and the prosecution may not always
believe it has sufficient evidence to prove a case beyond a
reasonable doubt, so not every crime is prosecuted. Usually, the
decision to seek an indictment depends on whether the
prosecution believes it can get a conviction and whether the
interests of justice would be served by prosecuting the crime.
At the federal level, almost all criminal prosecutions are
initiated by the indictment process, and the decision on whether
to prosecute is generally guided by the Principles of Federal
Prosecution, published by the Justice Department in 1980.
These principles state that the primary consideration is whether
the existing admissible evidence is sufficient to obtain a
conviction for a federal crime. Even if sufficient evidence does

exist, the prosecutor’s office might choose not to prosecute a
crime if no substantial federal interest would be served by doing
so, if the defendant could be efficiently prosecuted in another
jurisdiction, or if an adequate noncriminal alternative to
criminal prosecution exists. The factors influencing the
substantiality of the federal interest are listed in Exhibit6-3.
The principles clearly recognize that other prosecutorial actions
may offer fairer or more efficient ways to respond to the
criminal conduct.
1. Federal law enforcement priorities established by the
Department of Justice
2. Deterrent effect
3. The subject's culpability
4. The subject's willingness to cooperate
5. The subject's personal circumstances
6. The probable sentence
7. The possibility of prosecution in another jurisdiction
8. Noncriminal alternatives to prosecution
Exhibit 6-3 Factors for Determining a Substantial Federal
Interest and the Principles for Federal Prosecution
Some alternatives might be to institute civil proceedings against
the defendant or to refer the complaint to a licensing board or
the professional organization to which the defendant belongs.
Another alternative to indictment is pretrial diversion (PTD).
Pretrial diversion attempts to keep certain criminal offenders
out of the traditional criminal justice system by channeling
them into a program of supervision and services. A PTD
participant signs an agreement with the government
acknowledging responsibility for the act at issue but not
admitting guilt. The participant agrees to be supervised by the
U.S. Probation Office and comply with the terms established for
the agreed-upon period of the agreement, up to 18 months.
Terms, which vary according to the circumstances and the
criminal activity, might include participating in community
programs or paying restitution. If the participant complies with
the agreement, the matter is closed. If not, he or she is then

prosecuted.
After the indictment comes the , a time when the defendant
appears in court and enters a plea of guilty or not guilty. A not-
guilty plea entitles the defendant to a trial before a petit jury. If
the defendant declines a jury trial, the case is heard by a judge
alone, in a procedure called a bench trial.
arraignment
Formal appearance of the defendant in court to answer the
indictment by entering a plea of guilty or not guilty.
A defendant may also enter a plea of . By making this plea, the
defendant does not admit guilt but agrees not to contest the
charges. The advantage of a nolo contendere plea over a plea of
guilty is that the former cannot be used against the defendant in
a civil suit.
nolo contendere
A plea of no contest that subjects the defendant to punishment
but is not an admission of guilt.
Plea Bargaining
At any time during the proceedings, the parties may engage in ,
which is a process of negotiation between the defense attorney
and the public prosecutor or district attorney. The result of this
process is that the defendant pleads guilty to a lesser offense, in
exchange for which the prosecutor drops or reduces some of the
initial charges. Plea bargaining benefits the criminal by
eliminating the risk of a …
548 Trakia Journal of Sciences,
Vol. 17, Suppl. 1, 2019
Trakia Journal of Sciences, Vol. 17, Suppl. 1, pp 548-554, 2019
Copyright © 2019 Trakia University

Available online at:
http://www.uni-sz.bg
ISSN 1313-7069 (print)
ISSN 1313-3551
(online) doi:10.15547/tjs.2019.s.01.087
ADAPTED CONFLICT RESOLUTION MODEL IN BUSINESS
ORGANIZATIONS
Iv. Ivanov*
Industrial Business Department, Faculty of Business, University
of National and World Economy -
Sofia, Bulgaria
ABSTRACT
The success of any modern business organization increasingly
depends on its ability to manage and
resolve conflicts. The development and implementation of an
adequate conflict management technology
in business becomes a priority task for Bulgarian business
organizations. Conflict resolution, as part of

the overall process of Business organization management, is a
key driver for efficiency gains. The present
paper provides an adapted model for conflict resolution in
business organizations as a whole. The aim of
the paper is to provoke a scientific discussion of the problem
presented here. Such kind of development
would provoke a scientific search for other, more efficient ways
of putting existing conflict theory and
methodology into practice. The development of this specific
management activity is on the agenda for
both scientists and practitioners. The cooperation between them
is crucial for the development and
implementation of adequate best practices in this area of study.
Key words: Conflict forecasting, Conflict prevention, Conflict
stimulation, Conflict regulation,
Management
INTRODUCTION
Conflicts, whether we like it or not, are an
integral part of the life cycle of people and
socio-economic systems, which they create to

achieve their goals. Throughout history,
conflict, as a universal human phenomenon has
constantly excited interest in scientists from all
fields of science. With the development of
management there is a growing practical
interest in conflict management in
organizations. The interest in that problematic
area, especially in business organizations, is
aroused by the need to look for solutions of a
number of questions related to increasing the
effectiveness of management and the overall
activity of the business. At present, modern
theory and practice of conflicts and their
management cannot and do not undoubtedly
claim to provide a heal-all to the array of
problems which modern environment and
internal conditions in organizations present to
business. It is the aim of the present paper to

_____________________________
Ivaylo Ivanov, 1700 Sofia, Bulgaria, Studentski
grad “Hristo Botev”, University of National and
World Economy, Office 4035, Tel.: (+359 2) 819-
52-67, E-mail: [email protected]
provoke a scientific discussion on a number of
issues, which are of interest for the author in
his scientific research. One of them is related
to the development of an overall methodology
for evaluation, analysis and solution of
conflicts in Bulgarian business organizations.
It is not about a methodology claiming to be
universal, but rather one that to a great extent
will take into consideration the specificity of
the business environment in Bulgaria and offer
appropriate solutions. As a step in that
direction the immediate task the author has set
himself is to seek the opinion of the
representatives of science and of the

practitioners on an existing, present in theory
verbal model of conflict resolution in business
organizations. It is this adapted model that the
author intends to use to attain his final goal.
Bulgarian society is permeated by conflicts of
various nature. The prevailing feeling is that
most of them will further intensify. Only time
will tell whether the situation will go in that
direction. For us – that part of the scientific
community which studies the problems of
managing business, and the representatives of
business, there is the unsolved task to jointly
http://www.uni-sz.bg/
mailto:[email protected]
IVANOV IV.
Trakia Journal of Sciences, Vol. 17, Suppl. 1, 2019
549
develop, offer and apply adequate management

technologies and best practices in the field of
management and conflict resolution. There are
a number of problems Bulgarian business is
going to face. For the time being let us focus
on three of them – mass demotivation (1) and
demoralization in Bulgarian society, combined
with its demographic shrinkage. It is obvious
from their development that the creation and
implementation of working technologies in the
abovementioned field may turn out to be of top
priority. As a supporter of the strategy
“survival through development“ the author
believes that the success of a business
organizations in Bulgaria depends on their
ability to manage and resolve their conflicts. It
is our belief that it will happen but only after
we make the first step of tuning in our way of
thinking towards discovering opportunities in

the problems around us and swing into action.
CONFLICTS AND THE STATE OF
CONFLICT MANAGEMENT SCIENCE
IN BULGARIA
After the radical change of 1989 Bulgarian
society has been afflicted by unfamiliar
conflicts, which have brought the science of
social conflicts and their management –
conflictology, to the forefront and it has
attracted considerable scientific and public
interest. The scientific community and public
practice have had and still have a burning need
for new, theoretical knowledge of conflicts,
which will enable us to solve topical issues and
practical tasks. Due to the efforts of a small
circle of Bulgarian scientists and researchers
we are witnessing the further development of a
new sphere of scientific knowledge for our

country– conflictology (2).
Conflicts, which resulted from the
transformation of Bulgarian society and
economics, had a direct impact on the
effectiveness and the quality of Bulgarian
business organizations. Modern studies and
research (3-7) report the wide awareness and
recognition of the growing significance of
conflicts in all spheres of life on a regional,
national and world scale.
The generic definition of conflict we have used
has been formulated by the founder of modern
science of social conflict in Bulgaria –
Prof.DSc. Dimitar Yordanov Dimitrov. It is
generally accepted that Conflict is a form of
manifestation of contradictions – a universal
and eternal human and public phenomenon,

based on the dynamic interaction between at
least two conflicting parties, caused by
different interests, needs, goals, values,
opinions and lack of resources where means of
various nature are used to achieve the goals
and satisfy the interests; it ends in victory,
defeat, compromise or a mutually acceptable
solution (8).
THE AIM AND THE FOCUS OF THE
PAPER
The focus of the present paper is on conflict as
a phenomenon related to individuals and
business organizations, which people establish
or participate in. Conflict is of interest in terms
of the objective laws for its occurrence
(prerequisites for its occurrence, development,
ending, effects and situations after its end) in

their entirety. Conflictological relations
between individuals and social groups -namely
business organizations and their activities, are
studied. The aim is to get to know various
means and ways of impacting (analysis,
forecasting, prevention, practice) conflicting
relations of the interacting parties. That
activity is not an end in itself. It is a step
forward in technologizing the acquired
knowledge in the field of conflict management.
In the end this is one of the ways for solving
practical problems related to conflicting
interaction in business organizations.
The development of such an understanding of
the nature of the processes under study is based
on the achievement of many researchers with
acknowledged contribution in the science and
practice of conflictology such as Boulding (9),

Burton (10, 14), Darendorf (11), Kriegsberg
(12), Boardman and Horowitz (13), Deutsch
(15) and many others.
As a result of their theoretical and practical
work the thesis was adopted that conflict
management is of heuristic importance for
creating a technology for taking complex
decisions about the management of a business.
The present work is the starting point for
proving it. There is the assertion that the
mechanisms of conflict resolution play a
significant role in the technology of conflict
management in a business organization.
However, there are the questions of what the
specificity of conflicts in a business
organization is, what the main directions of the
analysis of existing and potential conflicts are.

METHODOLOGICAL FRAMEWORK
The assertion that each organization is
characterized by its own internal and external
IVANOV IV.
Vol. 17, Suppl. 1, 2019
environment has long been widely accepted.
The internal environment of an organization is
characterized by its functional structure, aims
and tasks, resources, technologies and
communications. The external environment of
an organization in turn is determined by
different in nature factors and social conditions
of the environment. It is their adequate
diagnostics that is at the base of the strategic
analysis and the successful implementation of

the views on the strategy of the business
organization. If we set the strategic aspect of
management aside then our attention turns to
the tactical and operational level of
management. And there are lurking conflicts in
the organization. That is a factor which in
Bulgarian research in the field of management
has received only cursory treatment and has
almost been ignored in public and business
practice.
To a great extent contradictions along the axes
of “Individual – Group“, Intragroup and
Intergroup conflicts are at the basis of
conflicts in the organization. These kinds of
conflicts play a prominent role in the process
of social interaction and realization of human
activities. And it is not only within the

framework of a particular organization but also
in the interaction between different
organizations. Inadequate interaction along
these axes, in their formal and informal
dimension, together with interpersonal
relations is often a major factor causing
conflicts in organizations.
Such a short overview of the types of conflicts
in an organization, based on the participants in
the conflict, is the minimal required, but
insufficient basis for dealing with conflicts.
We should not fail to mention the sources of
conflicts in organizations, which can be
summarized in four types – structural conflicts,
innovation conflicts, position conflicts and
resource conflicts. We could add yet another
characteristic for classifying conflicts in
organizations –the type of functional system of

the organization. It determines them as
organizational-technological conflicts,
conflicts in the socio-economic system of the
organization and conflicts in the
administrative-management system of the
organization. That typology comes to aid the
overall technologization of the management of
conflicts. Their effective solution, as the final
goal of the study, is only an element (and a
final one) of the whole process of managing
them.
THE LOGIC OF CONFLICT
MANAGEMENT AND THE ROLE OF
CONFLICT RESOLUTION
What is the logic that is applied. Managing
conflict is a purposeful management impact.
That impact is exerted on the behaviour and
the actions of individuals and groups in their

conflict and regarding their conflict interaction.
The final aim is solving the conflict as a whole
or at different stages of its dynamics of
unfolding.
The very process of managing the conflict is
quite complicated but for the purpose of the
goals set herein it can be brought down to three
main stages. They are: “Appeasing the
conflict“, “Resolving the conflict“ and
“Reaching a mutually beneficial
compromise solution among the parties“.
It is the area of Resolution of conflicts that is
the focus of our scientific and practical work.
At the risk of repeating myself – the main aim
is the following: – by means of the already
acquired conflictological knowledge to
technologize the process of resolving the

conflict, as the final stage in managing it. At
the same time opportunities will be sought to
mitigate the causes of conflicts and to
overcome or minimize the consequences of the
so called destructive and dysfunctional
conflicts.
Which are, however, the other steps that are
part of the process of managing conflicts and
precede its final resolution. All steps presented
below are taken by those making the
managerial decisions at different levels of the
organizations.
First comes forecasting of conflicts. That is
the activity of the one who makes managerial
decisions and it is directed at clarifying the
reasons for the potential development of a
certain conflict or conflicts. What comes next

is prevention of conflicts - an activity directly
targeted at averting a conflict or conflicts.
Sometimes there is the need for stimulating a
conflict - an activity targeted at provoking
(causing) a conflict. Quite often it is necessary
to regulate a conflict - an activity targeted at
abating and limiting conflicts. In the end
comes resolution of conflicts, which includes
all the activities of the manager related to
ending the conflict. The maximum to be
achieved is complete resolution of the conflict
through elimination of its causes and the
conflict situation. The result aimed at is
reaching mutually beneficial, lasting and final
IVANOV IV.
551

agreement regarding the real subject of the
disagreement between the parties in the
conflict. Quite often, however, its resolution is
incomplete – not all causes and accompanying
conflict situation are eliminated. However, that
is a matter for further consideration.
There must be a range of prerequisites for
resolving a particular conflict. The conflict
should be mature enough. There should be
the need in the parties in the conflict to have
it resolved. What should not be overlooked
also is the availability of the needed means
and resources for resolution of the conflict.
Before moving on to the essence of the
proposed adapted, staged model of resolution
of conflicts we need to say a few words about

the prerequisites and forms of conflict
resolution in business organizations. In
general, the forms of conflict resolution will
depend on the chosen strategies of behaviour
in these particular situations. According to
research carried out by Kilmann, R. H. and
Thomas (16), (17) the classical strategies for
settling the conflict are competition,
compromise, adaptation, avoidance and
cooperation. It is important to mention them
because often the adequate or inadequate
adoption of one of these determines the final
result of a conflict. A more detailed discussion
of them, however, is outside the scope of the
present study. As far as the ways of resolving
a conflict are concerned we would summarize
them, without going into details, into two main
ways – administrative and pedagogical.

THE DESCRIPTIVE MODEL OF
CONFLICT RESOLUTION IN BUSINESS
ORGANIZATIONS
The main understanding, the accepted logic of
the described processes as well as the proposed
adapted model are based mostly to the
philosophy of Prof. Dimitrov presented in the
abovementioned fundamental work
“Conflictology“of 2004. They are
complemented by the revised works of
Professor Luchian Milkov of 2014 (18) and
other Bulgarian authors such as Atanas
Gotchev (19) and Evgenia Vasileva (20). Full
credit should be given to the impact of world-
renowned or new sources in the field of
conflict resolution which have been cited in
this paper.

Here follows a description of the proposed
model. In essence it is a staged, descriptive
model of conflict resolution in general. The use
of the word adapted in its description is due to
the fact that it, when applied, takes into
consideration the specificity of the business
organization, for example, in organizing and
conducting business negotiations, the specific
actions for resolving the conflict, cultural
characteristics, the limitations of the industry
characteristics, the sphere of activity, the
application of the situational approach and
many other.
In essence the model for conflict resolution of
the business organization is based on the
execution of the following five stages with
their particular aims:
Stage one - Prevention of conflict. That stage

as a whole pursues the following two
objectives. The first of them is the earliest
possible diagnostics of a prospective conflict
interaction. The second one is related to
performing the needed actions in order to
prevent a destructive conflict.
Stage two. It is related to the Analysis of the
conflict situation. In the second stage we need
to take the following actions. First to forecast
the conflict in its general lines of development,
the way it goes and ends and its social
background. The subject and the object of the
conflict need to be distinguished. We cannot
do without an analysis of the parties
participating in the conflict. What is needed
also is an analysis of the managerial position of
the individual entrusted with the task of

organizing the process of resolution of the
conflict.
Stage three. It is related to the Preparation
of a strategy for resolution of the conflict.
That third stage includes several objectives.
Choosing particular strategies for conflict
resolution is the first of them. Next follows the
preparation of a particular programme (action
plan) for following the strategy for conflict
resolution. The preparation of criteria which
will be used to evaluate the effective resolution
of the conflict is the last objective at this stage.
Stage four – Implementation of the strategy
for conflict resolution.
At that stage the precise and consistent
implementation of the strategy for conflict
resolution is monitored, and when necessary,

the needed measures and actions are taken to
control and correct the strategy, on the basis of
the information (feedback) about the object
(objects) of managerial impact. The respective
ending of the conflict happens at that stage.
IVANOV IV.
Vol. 17, Suppl. 1, 2019
Stage five. Analysis of post-conflict
situation. In that final fifth stage the most
important thing to do is to perform three main
actions. The first is the evaluation of the
effectiveness of the actions taken for conflict
resolution. The next step involves an overview
of the experience acquired, with its positive
and negative sides. Finally, action should be

taken regarding the prevention of other
conflicts and most of all destructive ones.
In general, this is what the model for conflict
resolution in business organization, proposed
here for discussion, is about. Looking back at
the correlation “conflict management–
conflict resolution“ another applied tool can
be added to the here presented model. It
enriches the possibilities of analyzing and
managing conflicts in a business organization.
That is the algorithm of managing conflict
by leaders developed by Prof. Dimitrov. It is
based on a strict sequence of steps, whose
execution leads to a potentially successful
management of the conflict. Its logic does not
contradict but rather complements the
available practical tools for handling conflicts.

ALGORITHM FOR MANAGING
CONFLICTS BY LEADERS.
The first step is the study of the causes of
the conflict. The causes of a conflict in general
are:
1) Objective (do not depend on the cognizance
of those participating in the conflict);
2) Subjective (subjectively true reflect the
objective reality by the participants in the
conflict);
3) Subjectivist (are the fruit of the active
imagination of the participants in the conflict).
Techniques (methods) of execution:
а) Observation (of the conflict and of the
participants in the conflict). In this case the
manager is in a passive position;
b) Analysis of the results from the activity (of
the participants in the conflict);

c) Talk (with the participants in the conflict).
Here the manager is in an active position and
has a purposeful conversation with the
participants in the conflict interaction;
d) Study (analysis) of documents (directly or
indirectly related to conflict and the
participants in the conflict);
e) Biographical method (of the conflict and the
participants in the conflict).
Step two – limiting the number of
participants.
Limiting the number of the participants in the
conflict is a very important moment in
managing it. What is more, we should not
allow the subject of conflict interaction to
expand.

а) Work with the leaders in the microgroups.
Identification of the leaders in the microgroups
and influencing them with the aim to limit the
number of the participants in the conflict
interaction;
b) Redistribution of functional responsibilities.
In some cases there may be the need to move
the conflict participants in the organization and
change the nature of the activity they are
involved in;
c) Awards and sanctions, etc. The whole range
of techniques for stimulation (external
influence on the participants in the conflict)
and motivation (internally recognized needs
combined with external influence on the
participants in the conflict).
Step three – additional analysis of the

conflict by experts.
That step is highly needed in a continuous
conflict or in a conflict involving a great
number of participants.
а) Survey of experts. In this case it is best that
they are experts in the field of the conflict
which has occurred (economic experts in an
economic conflict, experts in the field of
management in managerial conflicts, etc.);
b) Attracting a conflictоlogist, a mediator, a
psychologist. Each of the three types of experts
has its specific role and place in managing the
conflict. The conflictologist is most
appropriate as expert in organizational
conflicts, the psychologist is best used as
expert in intrapersonal or interpersonal
conflicts, the greatest strength of the mediator

(intermediary) is demonstrated in
conflictological mediation and negotiations;
c) Negotiating process (mediation), etc. By and
large the negotiating process and its specific
conflictological variation - mediation are only
a tool for managing conflict. The decisions and
activities about its real management are made
and carried out by the manager and the
participants in the conflict, with the mediator
just providing assistance in the process.
Step four – decision making.
In the end, it all comes down to making
decisions about managing the conflict.
IVANOV IV.
553

а) Administrative methods. They are used if
the leader has administrative power (regulated)
– stimulation and sanctions;
b) Pedagogical methods. These include a rich
array of psychological, socio-psychological
and social methods of influence. For example,
persuasion, request, clarification, pressure,
advice, etc.
As a whole that is the theoretical statement of
the model, which has been tested in a real
business environment. There is a lot of work to
be done on improving it and testing it on a
statistically relevant scale. Ways are sought to
integrate into the herein described model other
appropriate instruments for managing and
resolving conflicts in business organizations.

In today’s highly dynamic environment this is
not a hindrance. It is even obligatory, as a
supplement to the model here proposed and the
accompanying algorithm, to employ what other
models can offer. A good example in this
respect is the “CHANGES: A Conflict
Management Model for Organizational
Redesign Efforts “model (21).
The beginning of the road has been marked
and as Laozi says 'A journey of a thousand
Chinese miles (li) starts beneath one's feet'.
CONCLUSION
As the attentive reader has already noted there
is a difference between the definitions and the
essence of the concepts of conflict
management and conflict resolution, although
they are of similar nature. Generally, it is much

easier to manage a certain conflict than to
resolve it. There are even authors who claim
that a conflict can be managed only but not
solved because the resolution of the conflict
interaction is related to phenomena which
cannot be influenced: the needs, motives and
interests of the individual, value orientation
and social attitudes, etc. The author of this
paper does not agree with such an extreme
view. Public and business practices provide
many examples which prove the theoretical
possibility of conflict resolution. That
possibility, of course, can be realized under
certain subjective and objective prerequisites
and conditions (8).
The adapted model for conflict resolution
proposed here is at present being tested in

Bulgarian business organizations from various
sectors. The plan is, over a period of two years,
to achieve results which will empirically prove
the degree of its effectiveness. The answer to
the question whether this choice of a
theoretical structure of the here proposed
descriptive model of conflict resolution was
reasonable can and will be obtained only
through public practice. At the moment all
advice about its optimization, all
ascertainments, conclusions and
recommendations about its adequacy are
welcome. The author relies on the scientific
community and experts from practice to get
involved in the discussion he has initiated. A
well-meant and open discussion is the way to
find simple solutions to the complex problems
that we create ourselves or the environment, in

which we pursue our activities and goals,
presents us with. It is the aim of the author to
make a contribution in the field of conflict
resolution in business organizations. It is his
belief that collaborative work can make this
aim attainable.
REFERENCES
1. Angelova, M. Research and overcoming the
demotivation of human resources.
Dissertation, UNWE, Sofia, 2014.
2. Dimitrov, D. Y., Conflictology and
conflictological culture, Economic
Alternatives (In Bulgarian), 4: 2004.
3. Furlong GT. The Conflict Resolution
Toolbox : Models and Maps for Analyzing,
Diagnosing, and Resolving Conflict.
Mississauga, Ont: Wiley; 2005.
4. Team Publications. Conflict Resolution.
Vol 2nd edition. ReadyToManage; 2006.
5. Booher DD. The Conflict Resolution Bible :

A Quick Reference Guide for Resolving
Conflict in the Workplace. Colleyville, Tex:
Booher Research Institute; 2013.
6. Mukherjee J. Conflict Resolution in
Multicultural Societies : The Indian
Experience. New Delhi, India: Sage
Publications Pvt. Ltd; 2014.
7. Hansen, T. The Generalist Approach to
Conflict Resolution : A Guidebook.
Lanham: Lexington Books, 2013.
8. Dimitrov, D. Y. Conflictology, Publishing
complex “Stopanstvo”. (In Bulgarian).
Sofia, Bulgaria, 2004.
9. Boulding, K. E., Conflict and Defense: A
General Theory, New York, Harper, 1962.
10. Burton, J. W., Conflict: resolution and
prevention, N.Y.: St. Martin’s Press, 1990.
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11. Darendorf, R., The modern social conflict.
An essay on the politics of liberty,
Berkeley: University of California Press,

1990.
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Vol. 17, Suppl. 1, 2019
12. Kriegsberg, L., Social Conflicts.
Englewood-Clifts, N.J.: Prentice-Hall, 1982
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13. Boardman S., Horowitz S. Constructive
Conflict Management and Social Problems:
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