Procedural justice and regulatory compliance Law and Human Behavior, VoL 20, No. 1, 1996 Procedural Justice and Regulatory Compliance 'Ibni Makkai 1 and John Braithwaite 1~ This is a study o f perceptions o f the procedural justice of a business regulatory process among 341 Australian chief executives o f small organizations. Only mixed support is found for the notion that procedural justice perceived by chief executives explains changes in the compliance o f the organizations they run. A factor analYsis suggests that five facets o f procedural justice--consistency, correctability, control impartiality, and ethicality--can be combined to form a single measure. The decision accuracy facet was not part of the general procedural justice factor. It is just one of these facets, contro~ that is significantlY associated with changing compliance. As the chief executive's perception that they have had some control over the enforcement process increases, organizational compliance improves. The procedural justice measures correlate more strongly with regulatee satisfaction for this regulatory regime than do regulatory outcomes. A significant reorientation of law and social science research has been effected by the social psychology of procedural justice tradition (Lind & Tyler, 1988; Thibaut & Walker, 1975; Tyler, 1990). At root, this intellectual tradition challenges forward- lookingl economistic and rational choice models, with their focus on outcomes. Pro- cedural justice scholars emphasize, in contrast, the effects of the perceived fairness of the processes that lead to outcomes. The idea is that looking back on the fairness of the processes one has experienced might shape future behavior more than look- ing forward to expected outcomes. Experienced fairness matters more than expected utilities. While this claim remains controversial, there can be no doubt that subjec- tive procedural justice has some capacity to explain Why People Obey the Law? (Ty- ler, 1990). In this study, we will test the explanatory power of procedural justice in a domain where expected utility has been found to lack general explanatory power (Braithwaite & Makkai, 1991; Makkai & Braithwaite, 1994). This domain is com- pliance with the quality of care standards mandated for nursing homes by the Aus- tralian government. This will enable quantitative testing of procedural justice hypotheses for the first time on corporate as opposed to individual compliance. IResearch School of Social Sciences, Australian National University. 21"o whom correspondences (including requests for reprints) should be addressed at Law Program, Research School of Social Sciences, Australian National University, 0200 Canberra, Australia. E-mail: jbb304@coombs.anu.edu.au. 83 0147-7307/96/02{X)4]083509,50fl �9 1996 American Ps~hology-Law Society/Divlsion 41 of the American Psychological ~ t i o n 84 Makkai and Braithwaite It might be said that the social psychology of procedural justice constructs theories o f individual behavior, so there is n o reason to expect that it would be relevant to corporate conduct. On the contrary, qualitative research on corporate compliance with regulatory laws that has been conducted by sociologists, political scientists, and business scholars has been replete with observations of managers' perceptions o f procedural injustice undermining corporate commitments to compli= ance (Bardach & Kagan, 1982; Braithwaite, 1985; Levi, 1988; Sigler & Murphy, 1988; Vogel, 1986). While the procedural justice tradition is primarily about mi- croencounters between individuals (but see Lind, Kulik, Ambrose, & de Vera Park, 1993; Lind & Tyler, 1988), there is a parallel tradition of political theory at the macro level of whole societies which advances the proposition that states secure the compliance of their people when they strike a policy bargain that the citizenry perceives as just. Levi calls this the theory of contingent consent (Levi, 1993). T h e study of corporate compliance involves a test of the conceptual tools o f procedural justice t h a t is intermediate between individual and societal compliance. T h e capacity to abuse the organizational form enables the organizational actor to "pass o n " resentments fueled by perceived injustice in ways that non-organiza= tional actors cannot. This extends even to passing through the organization the impact of sanctions that are perceived as unfair:. Facilities will steal the money to pay fines from food or medical supplies because he Is/c] resents it. H e sure won't take it out of profits o r the Administrator's salary if he doesn't think the fine was fair. Because he resents it, he'll spite the bureaucrats by cutting the meat and eggs expenditure and blame the bureaucrats in his own mind for the way the patients are made to pay. (Executive Director of a U.S. state nursing home trade association) A n u m b e r of different facets of the procedural justice domain have been sug- gested in the literature. Drawing on Leventhal (1980) and Tyler (1988), six facets of procedural justice are identified in this paper--consistency, decision quality o r ac- curacy, correctability, control, impartiality, and ethicality. Consistency is Leventhal's (1980) first criterion of procedural justice. It can m e a n consistency across time, but its important meaning in the domain of business regulation is consistent treatment of different businesses. This is the sense in which consistency is used in this article. 3 While consistency equates with the scientific conception of reliability, decision accu- racy or quality equates with validity. It means doing what is necessary to get the decision right (Tyler, 1988). Correctability means being able to complain about un- fairness by a law enforcer to some "agency or organization" (Tyler, 1988, p. 113). Control was partitioned by Thibaut and Walker (1975) into process control and de- cision control, while Leventhal (1980) combines t h e m in his notion of representation. Impartiality means absence of bias. The most i m p o r t a n t forms of prevention of favouritism or external bias in Australian society are t h e elimination o f bias o n the basis o f race, sex, age, nationality or o t h e r characteristics of persons. Ethicality is the m o s t vaguely defined of the procedural justice facets. Tyler (1988) defines it as "the degree to which the decision-making process accords with general standards o f fairness and morality" (p. 105). This gives it a m e a n i n g with little more specificity Sin a way, there is neither the reality nor the pretense of consistency across time in this domain because we are dealing with a new regulatory program (which was accepted as being thoroughly inconsistent with the past). Precedural Justice 85 t h a n t h e broad d o m a i n o f procedural fairness itself. W h e n Tyler (1988) c o m e s to operationalize ethicality, he does so in two ways--perceptions o f politeness a n d concern for rights. We prefer to view politeness as something conceptually quite different from ethicality (and i n d e e d ~ o m procedural j u s t i c e ) ? O u r p r e f e r e n c e is for Tyler's second specification o f ethicality as respect for rights. T H E N U R S I N G H O M E STUDY To test the importance o f a perceptual m o d e l o f procedural justice o n o r g a n - izational compliance, a panel design was used with two waves o f inspection d a t a a n d interviews with chief executive officers (directors o f nursing). Such d a t a were provided f r o m a study of Australian nursing h o m e s surrounding the four largest metropolitan centers in Australia where m o r e t h a n two-thirds of all nursing h o m e s in Australia are located. In 1987 t h e Australian g o v e r n m e n t moved t o take over from state governments the monitoring a n d e n f o r c e m e n t o f standards o f quality o f care in nursing h o m e s t h r o u g h o u t Australia. A t this time they also replaced the input standards t h a t h a d been used t o regulate the industry with 31 new o u t c o m e standards covering seven main objectives--health care, social independence, free- d o m o f choice, privacy and dignity enjoyed by residents, the environment o f the nursing home, the variety o f experience available to residents, and safety (including risks f r o m fire, violence, infection and the u s e of restraints). 5 A n initial sample o f 410 nursing h o m e s were inspected over a two y e a r pe- riod. 6 T h e p r o c e d u r e for inspecting nursing h o m e s is straightforward. A t e a m o f n o t fewer t h a n two, one o f w h o m must always be a t r a i n e d nurse, visits the nursing h o m e for an average o f 6.5 hours. The t e a m is required to inspect and rate each o f t h e 31 standards as met, action required or u r g e n t action required. Following this there is a compliance meeting between the nursing h o m e and the inspection t e a m where the t e a m discusses its initial ratings with staff. Negotiation over the accuracy o f the ratings sometimes requires t h e inspection t e a m to revisit the h o m e to g a t h e r f u r t h e r information. In this meeting the appropriate action plans t o bring the nursing h o m e into compliance are discussed a n d are included in the final report. 4Indeed, there is a correlation of only .17 between our measure of ethicality in Table II and a 7-point rating of the inspection team as "courteous" at one pole to "rude" at the other measured at time 1. When the courteous-rude rating is entered into the regression in Table V it is not a significant predictor. 5See Braithwaite, Braithwaite, Gibson, Landau, and Malckai (1991) for a detailed discussion of the standards. eThe government agreed to inspect a proportionate random sample (stratified by size, type of ownership, and level of disability of residents) of 242 nursing homes over a 20-month period. In order to increase sample size all additional homes inspected within the sampling regions during this time flame were included in the study (n = 168). The random and supplementary samples were compared on a range of factors (see Braithwaite, Makkai, Braithwalte, Gibson, & Ermann, 1990). There were no substantial differences between these two groups of homes in terms of geographical and organizational characteristics of the nursing home, the sociodemographic characteristics and attitudes of the directors of nursing, and the nursing home's compliance ratings. On this basis the two groups have been combined. However, the models include a control variable indicating whether or not the nursing home was part of the random sample. 86 Makkai and Braithwaite Within ten days o f the compliance meeting the final report is sent to the nursing h o m e w h o have six weeks in which to object to its contents. ~ It is these 31 ratings that provide the d e p e n d e n t measure of organizational compliance. A separate study has shown that the standards are reliable, valid, a n d comprehensive i n their coverage of the medical, personal, and social n e e d s o f the nursing h o m e ' s residents (Braithwaite, Bralthwaite, Gibson, Landau, & Mzkkai, 1992). O n this basis, the standards are s u m m e d to form a total measure o f com- pliance ranging f r o m 0 (no compliance) to 31 (absolute compliance). Test-retest reliabflities based o n i n d e p e n d e n t inspectors rating 50 h o m e s ranged f r o m .93 to .96 (Bralthwalte et a l , 1992). Following the finalization of the first inspection report, each director o f nursing was asked to participate in a face-to-face interview. These interviews were extensive, often lasting u p to three hours or into a second sitting. A wide range of issues were covered, two of which a r e important for this article--perceptions of procedural justice and decision accuracy. A 96% response rate was obtained for the random sample homes. A second inspection was undertaken of 341 of the initial 410 homes, mostly 18 to 20 m o n t h s later, s O n e h u n d r e d and three o f these h o m e s had c h a n g e d their chief executive officer between the two inspections. T h e directors o f nursing o f t h e remaining 238 h o m e s were mailed a questionnaire following the completion o f the inspection t e a m ' s report. To ma~miTe response rates, two follow-up letters were mailed to the respondents and the final follow-up was undertaken by telephone. Five directors o f nursing refused to participate and 36 failed to return a c o m p l e t e d schedule, resulting in a response rate o f 83%. �9 To properly assess the importance of procedural justice it is necessary to focus n o t on compliance at some point in time but on w h e t h e r compliance has improved over time. Perceptions of the procedural justice afforded to nursing h o m e s by in- spectors are assumed to be formed by the first encounters with standards monitor- ing teams experienced during the period from their first inspection through to their second inspection. Since we are testing the effect of an intervention during a finite period of time rather than the effect of an ongoing structural feature o f the envi- r o n m e n t , a change in compliance m o d e l is the correct one. I m p r o v e m e n t in com- pliance is m o s t effectively captured by using the total compliance score at the second inspection as the d e p e n d e n t variable and controlling for compliance at the f a s t inspection as a baseline against which to m e a s u r e change. T h e addition of the first inspection ratings as a control in "Ihble III partials out the nursing h o m e ' s initial performance, leaving only the change i n performance as the d e p e n d e n t vari- 7In the early days of monitoring the nursing homes, the report was sent to the proprietor of the home who then passed it o n to the director of nursing. This changed in 1988 so that the report was sent to both the proprietor and the director of nursing. SSee Braithwalte, Makkai, Braithwaite, and Gibson (1992) for a detailed discussion o f the follow-up rates for the study. Although preliminary data analyses indicated that the time between the first a n d second inspections d i d n o t significantly affect compliance, the time between the two inspections has been included in the model as a control variable. Analyses were undertaken to determine if there were any significant differences between homes that had, and had not, been visited by an inspection team. Out of seven characteristics of the director of nursing, four characteristics of the nursing home and three characteristics of the proprietor, only one characteristic of the director of nursing was found to significantly differ (p < .01) ('Braithwaite et al, 1992). Procedural Justice 8'7 able. This also has the effect of controlling for a variety o f factors that have been shown in previous work to affect corporate compliance among nursing homes (see Makkai & Braithwaite, 1991). These factors include the type of ownership, size and age o f the nursing home, and nursing resident profile. As there is no theoretical rationale as to why these factors should also affect change in the level o f compliance (compliance at time 2 controlling for compliance at time 1) it is assumed that the control for initial compliance captures all of their effects. T h e model does control for two additional factors. The first and most impor- tant is the geographical location of the nursing home. This factor was shown to be important in predicting first wave compliance, but as our fieldwork suggests that interstate differences in regulatory styles may have varied across time, this will im- pact on change in compliance. Three dummy variables are used to capture the four geographical regions--Queensland, Victoria, New South Wales, and South Austra- lia. South Australia has been chosen as the excluded category as nursing homes located in this state had significantly lower levels of compliance than the nursing homes in the other three states. The second control variable is whether or not the nursing home had been selected as part of the original random sample. In the models we also include measures of two alternative hypotheses--the use o f praise and subjective perceptions of deterrence. These rival measures allow some comparison of procedural justice with the explanatory power o f competing theories. Praise was selected f o r inclusion in the model because of previous evidence that it affects compliance (Makkai & Braithwaite, 1993) and because o f the plau- sibility o f the claim that inspectors who are procedurally fair will also be inspectors who offer a lot of praise. A procedural justice finding will be more robust if it shows an effect over and above the effect of praise. The praise measure is a com- posite scale of the use of eight different approaches to encourage compliance as reported by the individual team members (Makkai & Braithwaite, 1993). Directors of Nursing were asked the following questions: Different approaches will work under different circumstances in getting nursing homes to comply with government standards. How often have you used each of the following approaches to encourage compliance with the standards? Very often used, Quite often used, Sometimes used, Rarely used and Never used? Appendix A shows the individual items. Responses to these items were summed resulting in a praise scale ~vith a mean of 5.62, standard deviation o f 2.43, and a Cronbach alpha of .80. The final scale has a mean of 5.62, standard deviation of 2.43, with a Cronbach alpha of .80. As the inspection process is a team exercise, praise scores were averaged across the multiperson teams and then matched to the nursing home that the team inspected. Although 74% of inspectors returned usable questionnaires, 9 there were only 187 homes for which all members of the team answered a questionnaire, and there were 13 homes where no m e m b e r of the team returned a questionnaire. These latter homes have been excluded from the analyses. In the case o f homes where there are incomplete data on the team, we have taken what were available and 9Two hundred and fifty-eight inspectors were mailed questionnaires. Of these 14 refused to participate, 32 were returned to the sender, and 21 failed to return the questionnaire. 88 Maklud and Braithwaite included in the models a control for whether or not there were data for all t e a m members. 1~ "lhble IV shows that this has no effect on the model. A deterrence measure is included because the procedural justice paradigm is gene~ally advanced as an alternative to conceiving compliance as motivated by ra- tional weighing o f likely outcomes such as punishment (Tyler, 1990). The subjective perceptions o f deterrence measure used is a subjective expected utility model for enforcement, which is comprised of the additive and multiplieative effects o f the perceived certainty and severity o f five different sanctions that can be applied to nursing homes for noncompliance (Makkai & Braithwaite, 1994). The formal speci- fication o f this model is Compliance = a + b l ~ [ ( D 1 x P1 x $1)+ . . . + ( D 1 • Pk • Sk)] + e where a is the constant, b 1 is the coefficient, D 1 is the perceived probability o f detection, P1 is the perceived probability of punishment, S 1 is the perceived severity o f punishment, k is the full range o f sanctions, and e is the disturbance. At this time there were three Commonwealth sanctions in force along with a n u m b e r o f residual state government enforcement powers. The deterrence variable specified here includes three Commonwealth sanctions: (a) withdrawal of Common- wealth funding for new admissions to the nursing home; Co) withholding annual Commonwealth funding increase to compensate for inflation; and (c) cutting off all Commonwealth funding. It also includes two state sanctions: prosecution and $2,000 fine o f the proprietor, and withdrawal o f the home's license to operate. As the measure is comprised of 12 variables, there are some missing data which in a listwise procedure reduce the number of cases by 30%. To overcome this problem we have included eases with missing data in the variable but included a d u m m y variable where a score of 1 indicates that the home has missing d a t a and score o f 0 indicates that the home did not have missing data. This control variable was not found to be significant, as is shown in "lhble 1~. MEASURING PROCEDURAL JUSTICE This article uses both a composite and a disaggregated multifaceted measure o f procedural justice. We collect information on each o f the six facets of procedural justice--decision accuracy, consistency, correctabflity, control, impartiality, and ethi- cality. First, perceived decision accuracy was measured in the following way. A f t e r the first inspection, directors o f nursing were asked whether they agreed with the ratings that the inspection team had given the nursing home. There was high agree- m e n t with the inspectors' ratings. In 42% o f homes there was complete agreement with the inspection team's ratings on all 31 standards. A further 18% agreed with ratings given on 30 of the standards. The average number o f standards on which l~ elsewhere have shown that homes where complete data for t h e team was available were more h'kely to be located in Victoria and less likely to be from South Australia. Thus, restrictm" g the analyses would bias t h e sample to reflect the V'~'torian region. Procedural Justice 89 d i r e c t o r s o f n u r s i n g a g r e e d w i t h i n s p e c t i o n t e a m s w a s 28.5. T h e l o w e s t n u m b e r o f s t a n d a r d s o n w h i c h t h e r e w a s a g r e e m e n t w a s e i g h t ; this o c c u r r e d in o n e i n s t a n c e . F o l l o w i n g t h e s e c o n d i n s p e c t i o n , d i r e c t o r s o f n u r s i n g w e r e a s k e d t h e e x t e n t o f t h e i r a g r e e m e n t w i t h a v a r i e t y o f a t t i t u d i n a l s t a t e m e n t s . N i n e o f t h e s e i t e m s h a d b e e n specifically d e s i g n e d t o c a p t u r e t h e r e m a i n i n g f a c e t s o f p r o c e d u r a l j u s t i c e . Table I s h o w s t h e i t e m s a n d t h e d i s t r i b u t i o n o f r e s p o n s e s t o t h e m . T h e v a s t m a j o r i t y o f r e s p o n d e n t s a g r e e t h a t t e a m s w e r e i m p a r t i a l in t h e i r d e a l i n g s w i t h t h e d i r e c t o r o f n u r s i n g , a n d t h e r e is also r e l a t i v e l y h i g h a g r e e m e n t t h a t t e a m s w e r e ethical. D i - r e c t o r s o f n u r s i n g w e r e m o r e likely t o a g r e e t h a n d i s a g r e e t h a t t h e y h a d s o m e c o n - t r o l o v e r t h e i n s p e c t i o n p r o c e s s , w h i l e o p i n i o n is s o m e w h a t m o r e e v e n l y split o n t h e issue o f c o n s i s t e n c y . A l m o s t h a l f o f t h e d i r e c t o r s o f n u r s i n g n e i t h e r a g r e e d n o r Table I. Items Measuring Various Facets of Procedural Justice Neither Strongly agree nor Strongly agree Agree disagree Disagree disagree Consistency Standards monitoring teams are pretty 5 46 15 25 consistent in the way they do their job The Team that visited my nursing home two 3 15 36 39 years ago gave us compliance ratings inconsistent with the way other nursing homes are rated Correctability If you are treated unfairly by a standards 5 25 49 18 monitoring team, it is easy to get your complaint heard If a standards monitoring teams makes a 5 20 42 30 mistake in its ratings of your home, it is extremely difficult to get it corrected Control Standards monitoring teams have not 1 15 17 56 given me enough opportunity to put my point of view to them Standards monitoring teams have taken 7 64 17 10 notice of the things I said to them Things I said to the team that visited 4 45 32 14 my home two years ago had an influence on t h e final ratings by the team Impartiality Standards monitoring teams have shown 26 58 13 2 no bias against me because of race, sex, age, nationality or any other characteristic of me as a person Ethicality Standards monitoring terns have always 9 58 21 9 respected my rights 10 7 10 2 90 Makkai a n d Braithwaite disagreed on the issue o f correctability, probably a result of their having no expe- rience o f appeal processes (which arc available but rarely used). Where there was more than one item measuring a facet they have been com- bined to form composite mensures. 11 As there was no theoretical reason for a par- ticular item to have a heavier weight i n the scale, all items were standardized to have a variance o f 1 prior to scaling. Scales with no natural metric were rescaled to run from 0 to 10. EFFECTS OF PROCESS VERSUS OUTCOME ON REGULATEE SATISFACTION A n American study o f corporate agents by Lind et al. (1993) found that pro- cedural justice judgments about court annexed arbitration of civil suits explained acceptance o f t h e arbitration award in preference to going to trial. These re- searchers found a "fairness heuristic"--procedural justice judgements that mediated the effects of process impressions and outcome evaluations. 1hble II shows the cor- relations between the different measures of procedural justice and satisfaction with the new regulatory process at time 2 for the present study. Satisfaction with t h e regulatory process was measured by the following four items: Today, my opinion of the whole standards monitoring program is highly favorable, favorable, neither favorable nor unfavorable, unfavorable or highly unfavorable; My opinion of the whole standards monitoring program since it started has gone up a lot, g o n e up somewhat, not changed, gone down somewhat, or gone down a lot; The standards monitoring program has not made nursing home residents any better off: strongly agree, agree, neither agree nor disagree, disagree, strongly disagree; and On balance the standards monitoring program is an unwelcome development: strongly agree, agree, neither agree nor disagree, disagree, strongly disagree. With a Cronbach alpha o f .69, responses to these four items were summed to form a single measure of corporate actor satisfaction. 12 Where appropriate, item re- sponses were reverse scored prior t o scaling so that the final satisfaction measure r a n g e d from low satisfaction (0) to high satisfaction (10). 13 Consistent with the theory o f procedural justice, perceptions o f the fairness o f process are more strongly correlated with corporate actor satisfaction than are the favorableness of outcomes (overall compliance ratings after the first and second in- spections), with one exception. All the facets o f procedural justice, except for decision accuracy, correlate significantly with corporate actor satisfaction. These correlations range from .27 for impartiality to .46 for ethicality. The composite measure of pro- llWhere appropriate, items were reverse scored so that a high score indicated strOng agreement with the procedural justice facet. 12A principle components analysis of the four items resulted in a single factor being extracted which 3explained 53% of total variation among the four items. Items were standardized to a variance of one, prior to scaling. As the resulting scale had no natural metric it was re, scored so that it ran from 1 to 10. Procedural Justice Table IL Correlations Between Procedural Justice and Satisfaction with the Regulatory Process Corporate actor satisfaction Facets of procedural justice Impartiality .27** Ethicality .46"* Consistency .38"* Correctability .44** Control .44"* Decision accuracy .08 General measure of procedural justice Composite .54"* Favorablcness of outcome measures Compliance T] .01 Compliance T2 .15" */7<.05. **p < .01. 91 cedural justice correlates significantly with satisfaction. Of the two measures of fa- vorableness of outcomes, it is only compliance measured after the second inspection that is significantly associated with satisfaction, but this is weak (.15). DIMENSIONALITY AND PROCEDURAL JUSTICE The literature uses the term procedural justice to cover a number of facets all o f which were conceived as potentially important contributors to this general con- struct. A question that arises is whether empirically these measures can be viewed as components of a single procedural justice dimension. A principal component analysis of the six domains was undertaken and the factor loadings from the rotated solution are shown in Table III. The intercorrelations among the facets are relatively high except for the decision accuracy measure. This facet is poorly correlated with control and impartiality. Its highest correlation is with consistency; directors of nurs- ing who had high agreemettt with the inspection team's ratings were also more likely to perceive the tearn~ as having been consistent in their ratings. Tyler (1990) conducted a factor analysis on this same set of facets. A two- factor solution was obtained, with consistency and ethicality defining the second factor and all t h e remaining facets loading on the first factor. A two factor solution also emerged from the principal component analysis of the six facets in the present data, though a different two-factor solution. The first factor accounts for 47% of the variation in the original six variables. This factor contains 5 of the 6 facets. 14 The remaining factor comprised the decision accuracy measure, accounting for 17% of the variation in the facets. These data would seem to suggest that there is a 14Given that the variance of the decision accuracy measure is larger than for the other facets, the principal component analysis has been undertaken on the correlation matrix (Dunteman, 1989). 92 Makkai and Braithwaite Table HI. Principal Components Analysis of the Six Facets of Procedural Justice Intercorrelatious 1 2 3 4 5 Factor 1 Factor 2 1. Ethicality .84 .13 2. Control .28 .81 -.06 3. Correetability -~2 .40 .66 .34 4. Consistency .30 .43 .51 .62 .49 5. Impartiality .42 .28 .32 .30 .61 .04 6. Decision accuracy .19 .06 .21 .32 .10 .01 .94 Percent of variance explained 47 17 general procedural justice domain which can b e formed empirically by creating a composite measure of the five facets. Given that decision accuracy is measured in a very different way from the other facets, which are attitudinal items with the same response categories, we must not discount the possibility that decision accu- racy dropping out of the procedural justice construct is a measurement artifact. D O E S PROCEDURAL JUSTICE IMPROVE COMPLIANCE? A general procedural justice domain was formed by combining the five facets. As the literature does not insist that particular facets of procedural justice are of more importance than other facets in affecting orgardza" tional compliance, each item was given equal weight in the scale by ensuring that all the items had a variance of 1. A low score on the resulting composite procedural justice scale indicated that the director o f nursing had a low perception of the procedural justice of the regulatory process while a high score indicated that their perception of procedural justice was high. x5 In "lhble I V the effects of the composite measure on procedural justice are ex- amined. Appendix B provides the inter-correlations between the items. The composite measure of procedural justice (formed by combining ethicality, control, correctability, consistency, and impartiality) is not significantly associated with changing compliance. N o r are subjective perceptions of deterrence a significant factor in accounting for changes in compliance. Hence, the major competing paradigm to procedural justice, rational calculation over outcomes (Tyler & Dawes, 1993), fares no better in this model. However, praise is found to have a strong and significant effect on compliance. We see that nursing home inspectors who use praise as a strategy do b e t t e r at increasing compliance (see Makkai & Braithwaite, 1993 for a detailed discussion o f this finding). As there is a significant positive correlation of .18 be- tween praise and composite procedural justice, it could be that the significant praise effect is masking a procedural justice effect. However, composite procedural justice is still not significant when praise is excluded from the model. It may b e the case that empirically some facets are more important than others in changing compliance. To test this hypothesis, "lhble V examines the effects of each o f the facets of procedural justice separately on changing compliance. Given 15/~ the scale had no natural metric it was reseored so that it ran from a low of 0 to a high of 10. Procedural Justice Table IV. Examining Globa ! and General .Procedural Justice on Compliance a 93 Composite measure b (S~) Controls Initial inspection ratings .33 (.29)** Hew South Wales 1.72 (1.08) Queensland 1.29 (1.20) Victoria -1.64 (1.20) Sample home .07 (.87) Length of time between first and second inspection .03 (.08) Gender composition of the team .11 (.65) Team's experience -.12 (.58) Full team 1.05 (.69) Control for missing data on deterrence model .42 (.62) Alternative hypthoses Team's reported use of praise .62 (.19)** Full deterrence model .01 (.02) Procedural justice measure Composite .15 (.20) Constant 10.65 Adjusted ~ .30 an = 192. Likewise deletion of data was used when estimating the models. The model also controls for missing data on the deterrence measure. *p < ,05. **p < .01. that the c o m p o s i t e m e a s u r e has failed to b e a significant predictor, w e should n o t b e surprised to see t h a t all b u t o n e o f t h e facets fail to b e significant. P e r c e p t i o n s o f control, however, are associated with a significant change in compliance o v e r time after praise, d e t e r r e n c e , and o t h e r controls a r e e n t e r e d in the model. T h e relationship is in the hypothesized direction, with directors o f nursing w h o perceive t h e m s e l v e s as having h a d s o m e control o v e r the regulatory process b e i n g m o r e likely to b e in charge o f nursing h o m e s that have i m p r o v e d in their compliance ratings over time. This is a strong result w h e n w e r e m e m b e r t h a t a masking effect m a y arise from including praise in t h e model. Again in this m o d e l praise has a significant positive effect o n c o m p l i a n c e and praise is c o r r e l a t e d .20 with control. T h e r e is a c o m p e t i n g interpretation to the t h e o r y o f p r o c e d u r a l justice for this result. This is that t h e fact o f giving directors o f nursing m o r e control o v e r t h e assessment o f compliance ratings is w h a t causes t h e i m p r o v e m e n t in c o m p l i a n c e ratings. While this c o m p e t i n g interpretation is obvious a n d strong, it m u s t b e t e m - p e r e d by recalling t h e extraordinarily high (.93 to .96) reliability o f c o m p l i a n c e b e - t w e e n raters, a result that is n o t consistent with i n s p e c t o r s b e i n g led to very different ratings in r e s p o n s e to differential assertion o f control b y directors o f nursing. A conclusion t h a t subjective p e r c e p t i o n s o f c o n t r o l over a process increase c o m p l i a n c e with its r e q u i r e m e n t s is c o n s i s t e n t with t h e literature (Tyler, 1990). Thibaut and Walker's (1975) original theory o f p r o c e d u r a l justice is really a t h e o r y o f control, to t h e exclusion o f t h e o t h e r facets later e m p h a s i z e d by L c v e n t h a l (1980) and Tyler (1988). H e n c e , t h e s e findings r e t u r n us to t h e centrality o f control as the h e a r t o f w h a t T h i b a u t and Walker saw as p r o c e d u r a l justice. 9 4 M a k e | a n d B r a i t h w a i l e ;I "~ .~ G~ A A ~ " ~ , i ~ ~ ~ 8 v Procmtural Jugi~ 95 CONCLUSION T h e r e is some vindication of t h e claims o f the social psychology of procedural justice tradition in these results. Perceptions of the fairness of processes are m o r e strongly associated with satisfaction with the regulatory process than are the favor- ableness o f regulatory outcomes. Apart from decision quality or accuracy, the cri- teria of procedural justice cited in the literature are indeed strongly correlated with general perceptions o f fairness. Indeed, a principal components analysis finds that they comprise a general procedural justice factor. However, the general measure of subjective procedural justice does not sig- nificantly predict compliance, and only one o f the specific facets of procedural jus- tice significantly predicts compliance in the regressions. Even so, control, the facet that does h a v e a significant effect in,improving compliance, is precisely the facet that we, like Thibaut and Walker (1975), had predicted would be most important. T h e o t h e r facets, one way or another, we had concluded on the basis of our quali- tative fieldwork not to be major issues. O u r reliability study shows consistency t o be remarkably high, at least within states (Braithwaite et al., 1992). O n the o t h e r hand, at the subjectiv e level there is a surprisingly marked concern about consis- tency a m o n g a substantial minority of directors of nursing. At this subjective level, impartiality and ethicality arc rarely concerns about Australian nursing h o m e in- spectors. They c o m m a n d enormous respect on these dimensions. Correctability is a strange facet in this domain since it is extremely rare for directors of nursing to contemplate lodging, an appeal against the decision of an in- spection team, let alone actually doing so. Such an appeal has yet to end up in a court, and even utilization of the tripartite (industry-government-consumer group) alternative dispute resolution mechanism (the Standards Review Panel) has rarely been used. T h e modal response on the correctability items is "neither agree nor dis- agree" because directors of nursing are responding from no basis of experience and in most cases have thought little about it. In some important ways, there is a negative relationship between the importance of control and the importance of appeal mecha- nisms. A nursing home inspector from New Jersey explained the common reason in both the United States and Australia why the sanction of imposing a ban on new admissions to the nursing home is rarely appealed: "Control is in the nursing home's hands. As soon as you fix this, it's lifted. Because they control their destiny, they d o n ' t challenge it." Through this process of elimination, control became the dimension of procedural justice that we always thought would be important in this context. T h e implication would seem to be that in different contexts, we need to think in rather specified ways about what are the facets of procedural justice that matter. In this first test of the theory on corporate compliance with the law, voice to influence the process and the decision was important in building a commitment among man- agers to comply. Our qualitative fieldwork observing 58 Australian nursing h o m e inspection events strongly confirms the importance of both process and decision con- trol. T h e agenda for future quantitative work o n corporate compliance might be to develop m o r e elaborate measures o f control that distinguish process from decision control. Also n e e d e d are more elaborate designs (ideally experimental designs) that 96 Makkal and Braithwaite enable researchers to rule out competing interpretations of the direction of the causal processes underlying the voice-compliance association. There is a need to be cautious about the generalizability of these results. Aus- tralian nursing home regulation is a domain where corporate satisfaction with the regulatory process is mostly high: Directors of nursing generally agree with the rat- ings that inspectors give them, and consistency ratings have been shown objectively to be high; concerns about impartiality, ethicality, and correctability are rarely in- tense. These procedural justice facets might loom as more important in regulatory settings with greater heterogeneity o f client satisfaction. ACKNOWLEDGMENTS This project has enjoyed the funding support of the Australian Department of Health, Housing and Community Services, The Australian Research Council, the American Bar Foundation, and the Australian National University. The authors are indebted to the support of their colleagues on the Nursing Home Regulation in Action Project, Valerie Braithwaite, David Ermaun, Diane Gibson, and Anne Jenkins. We would also like to thank two anonymous referees for their comments. APPENDIX A Items Used to Form Team's Praise Scale a Percent who "very often Item-total used" correlation 45 .65 When a nursing home has caring values, telling them that you see them as having caring values When nursing home management puts care of the residents ahead of their own interests, telling them that you see them as a home that puts residents first Looking for opportunities to give credit to the nursing home where it is due Helping the nursing home feel good about the quality of the service they are providing Being generous with praise when improvements are made Offering words of encouragement when things are well done Praising an instance o f the nursing home solving a problem as a model for how they should set about solving other problems Finding out who are the caring professionals in the nursing home and trying to give them support (e.g., through praise in the report) (Cronbach alpha) 40 .53 45 .52 41 .51 44 .50 59 .49 17 .48 .39 (.80) an = 173. 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