formalization is an integral component of organizational structure. Firms choose different
levels of formalization to increase the consistency of routine decisions and to bring
uniformity to decision process outcomes. However, prior research indicates that
formalization can also affect individuals’ attitudes, perceptions, and performance (Hall 1999;
Adler and Borys 1996; Brody et al. 2003a, 2003b; Asare and Wright 2004). For example, in 1997,
Enron’s auditors classified a $51 million misstatement as immaterial, even though it constituted
nearly 50 percent of Enron’s net income. The auditors justified their decision based on commonly
used decision aids (Brody et al. 2003b). While formalization can have positive effects in many
decision making contexts, the behavioral consequences of formalization must be carefully
considered to assess properly the consequences associated with chosen levels of formalization.