The Handbook of Business and Corruption

Cross-Sectoral Experiences

Michael S. Aßländer, Sarah Hudson, Michael S. Aßländer, Sarah Hudson

• Publisher: Emerald Publishing Limited
• Year: 2017
• Print ISBN: 9781786354464
• eBook ISBN: 9781787148970
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

For years, corruption has been dismissed as a cultural phenomenon prevalent in developing countries, mirroring low salaries, weak infrastructure, disorganized administration and unstable political conditions. What this theory fails to explain, however, is why so many western multinational corporations have been involved in corruption scandals in recent years – even though most of these companies ostensibly had anti-corruption programs and monitoring systems in place. This book considers corruption in the business world in its broadest sense, including bribery and petty payments, nepotism and cronyism, gift-giving, embezzlement of public property and money laundering. It then explores corrupt behavior across different sectors in more detail in an effort to understand how corruption varies by industry. While a number of books dealing with corruption have been published over the years, little attention has been paid to the specifics of corruption in different industries and economic sectors. With contributions from some of the leading global experts in business ethics and law, this handbook will be an essential resource for both scholars and practitioners.

PART I
Explaining and Preventing Corrupt Practices

CHAPTER
1

What is Organizational Corruption?

Philip M. Nichols

ABSTRACT

In its most basic usage, “corruption” means a change from functional or good to dysfunctional or bad. This definition is far too broad to be of use to scholars or policymakers, who need a more precise, shared definition so that they can communicate meaningfully with one another. Scholars and policymakers have developed scores of definitions, which this chapter briefly explains. Within this galaxy of definitions, scholars and policymakers have tended to favor one definition, which this chapter calls the “general definition.” The general definition describes organizational corruption as: the abuse or misuse of power or trust for self-interested purposes rather than the purposes for which power or trust was given. This chapter discusses and illustrates the general definition. The chapter concludes by pointing out that the general definition is only one definition. In many places, the public is deeply concerned with phenomena such as undue influence, which should also be taken into consideration as a form of corruption even though it falls outside of the general definition.

Keywords: Bribery; corruption; organizational corruption; trust; undue influence

Introduction

At its most basic, the word “corruption” describes a transition from working to not-working, from functional to dysfunctional, from good to bad. Thus, it is common to speak of computer files as having been “corrupted,” meaning that a file that once worked no longer does so. When a person who was once good manifests evil, that person too is described as having been “corrupted” – perhaps, as in the tale of the city mouse and the country mouse, having lost their countrified innocence after moving to a big city.

This use of the word is also used to describe organizations. The decline of the Roman Empire is often described as corruption (MacMullen, 1990). So too is the grinding transition of the British East India Company, which once controlled half of the world’s trade, from an economic titan to an ineffectual and disliked organization that was so embarrassing to Great Britain that it was dissolved and its holdings transferred to the Crown (Lawson, 2014).¹ The more rapid collapse of Enron Corporation, once one of the world’s largest energy corporations, which collapsed into bankruptcy under the weight of fraudulent and self-serving actions by members of its management is also one such example (Ashforth, Gioia, Robinson, & Treviño, 2008).

This use of the word corruption comports with its use and its understanding among the larger public, and thus has value. It presents, however, a challenge to scholars and to policymakers. This definition is so broad that it encompasses any systemic or institutionalized failure; it describes a phenomenon that is too general for meticulous scrutiny or for particularized solution. There are many, many reasons that organizations transmute from functional to dysfunctional or from good to bad, which renders a theory of such reasons generalized to the point of mere description (“firms fail”) and renders solutions generalized to the point of being mere platitudes (“work hard, be honest, don’t fail”). Those who study and work with corruption, therefore, need a somewhat more precise definition.

A History of Definitions

Scholars and policymakers have responded to the need for greater precision with a galaxy of definitions and theories. Making sense of the panoply of definitions is almost as difficult as creating a new definition. Two of the more ambitious attempts to explicate definitions of corruption are those of Arnold Heidenheimer (often in association with Michael Johnston), and Ulrich von Alemann. Both write mainly about the subcategory of public sector corruption rather than organizational corruption in general, but the work of both applies to organizations in general.

Heidenheimer suggests three broad categories of definitions: market-centered, public interest-centered, and public office-centered. Market-centered definitions of corruption posit a “rational”² actor who follows a particular thought process in deciding how to act. Thus, “[a] corrupt civil servant regards his (public) office as a business, the income of which he will (…) seek to maximize. The office then becomes a ‘maximizing unit’. The size of his income depends (…) upon the market situation and his talents for finding the point maximal gain on the public’s demand curve” (van Klaveren, 1989, p. 26). Public interest-centered definitions look into the effect of activities: corruption occurs when public servant’s activities, particularly when induced by “rewards not legally provided for, (…) does damage to the public and its interests” (Friedrich, 1966, p. 74). Public office-centered definitions are very similar, but rather than focusing on the effects of behavior instead scrutinize the agency of the actor involved. This sort of definition has come to dominate the corruption literature, and will be discussed further. Before parsing this definition, however, it is worth looking at an entirely different way of organizing theories of corruption.

Ulrich von Alemann suggests that rather than attempting to define corruption, corruption should simply be understood. He therefore categorizes corruption literature into five tropes of understandings: corruption as social decline, corruption as logic of exchange, corruption as deviant behavior, corruption as a system of measurable perceptions, and corruption as shadow politics (von Alemann, 2004). The aforementioned decline of the Roman Empire exemplifies a social decline understanding, as may the moral decline of the Soviet Empire, which Stephen Kotkin describes as resulting in a “pre-corruption” state (2001, p. 128). Corruption as a logic of exchange is similar to Heidenheimer’s market-centered definitions of corruption: people with power decide to use that power to maximize their own well-being. Corruption as deviant behavior is similar to both Heidenheimer’s public interest-centered and public office-centered definitions, in that people with power or responsibility violate rules regarding that power or responsibility.

Von Alemann provides little guidance as to what he means by understanding corruption as perception. There is, however, a very important relationship between corruption and generalized trust or ethical climate. Generalized trust consists of a sense that systems work and people – including strangers – can be trusted (La Porta, Lopez-de-Silane, Shleifer, & Vishny, 1997; Rothstein & Stolle, 2008). High levels of generalized trust substantially reduce transaction costs and increase cooperation and the formation of beneficial relationships (Bac, 2009). Generalized trust is a critical factor in the effective operation of an economy, and some developmental theorists consider generalized trust to be one of the most critical contributors to economic development (Bjørnskov & Ming-Chang, 2015; Fukuyama, 1995; Putnam, 1993; Uslaner, 2002). Within an organization, a strong ethical climate provides many of the benefits that generalized trust provides in a society. Individuals operating in an organization with a strong ethical climate contribute more to the organization and are more likely to cooperate with one another (Schminke, Arnaud, & Kuenzi, 2007). Understandably, observation of corruption or a perception that corruption exists reduces levels of generalized trust in a society, and diminishes the strength of an ethical climate in an organization (Badenhorst, 1994; Bruce, 1994; Serritzlew, Sønderskov, & Svendsen, 2014; Weeks, Longenecker, McKinney, & Moore, 2005). Von Alemann’s suggested trope of corruption as perception, therefore, might most usefully be interpreted as understandings of the interactions between corruption and the social fabric of an organization.

Von Alemann (2004, p. 32) is far more forthcoming in describing corruption as shadow politics. Von Alemann assigns political relationships to one of three groups. Relationships considered both legal and socially acceptable are assigned to lightness, while those that are both illegal and socially unacceptable are consigned to darkness. A third group, however, exists in the shadows: relationships or transactions “considered to be legitimate but not legal according to the law, or, conversely, considered to be not legitimate although still within the bounds of the law.” Campaign finance in the United States provides an example of activities that fall within the shadows: although securing favorable treatment through large campaign donations is legal in the United States, most people strongly disapprove of such activity.

Heidenheimer and von Alemann demonstrate the plethora of useful definitions of organizational corruption. The abundance of definitions presents scholars and policymakers with a problem similar to that presented by an overly broad definition; when interacting with one another on issues of corruption, scholars and policymakers might not be talking about the same thing. Obviously, scholars and policymakers need to communicate effectively with one another. Therefore, as research and attempts to control corruption have increased, scholars in the social sciences and policymakers in general have coalesced around a particular definition.

A General Definition

The definition around which scholars and policymakers have coalesced, which this chapter will designate the “general definition,” describes corruption as: the abuse or misuse of power or trust for self-interested purposes rather than the purposes for which power or trust was given. The seeds for this general definition are sometimes attributed to Joseph Nye (1967, p. 19), although von Alemann suggests its genesis can be found in an encyclopedia chapter written 30 years earlier by Joseph Senturia (von Alemann, 2004, p. 29; see Senturia, 1931, p. 448). In either case, the earliest versions of this definition encompassed only political corruption; the definition has, however, been generalized sufficiently to describe corruption in any form of organization.

This definition permeates several of the most visible practitioner organizations. Transparency International (2016), for example, defines corruption as “the abuse of entrusted power for private gain.” The World Bank defines corruption as “the abuse of public office for private gain” (1997, p. 8). The International Monetary Fund (2016) describes corruption as “the abuse of public authority or trust for private benefit.” The International Chamber of Commerce (2006, p. 2), focusing on corruption within private organizations, describes corruption as “the intentional [giving or taking] (…), in the course of international economic, financial or commercial activities, of any undue pecuniary or other advantage, to any person, who directs or works for, in any capacity, another private sector entity, for this or another person, in order that this person act or refrain from acting in breach of this person’s duties.”

Numerous social scientists use this definition as well. To single out any would be unfair, to list them all would overwhelm this chapter. Nonetheless, those who pause to review the arc of literature over the last 20 years agree that the general definition has in fact come to dominate the discussion of corruption (see, e.g., Delaney, 2007, p. 417).

Iterations of Corruption

Michael Johnston, who has made significant contributions of his own to understanding and defining corruption, observes that most literature and discussions of “corruption” actually contemplate bribery, which is only one iteration of the general definition of corruption (2005, pp. 20–21). Bribery consists of a quid pro quo – power or trust is abused or misused in exchange for some benefit given to the holder of that power or trust. Every country in the world criminalizes the bribery of its own officials, and it is important to distinguish legal definitions from conceptual definitions. Legal definitions must, particularly in countries that aspire to procedural fairness or justice, be sufficiently definite to give notice to an actor that that actor is at risk of engaging in prosecutable behavior, and sufficiently particular to allow a defendant to demonstrate that no line was crossed (or that the prosecution failed to prove that a line was crossed). Thus, for example, section 299 of Germany’s penal code, the Strafgesetzbuches, specifically defines bribery in business organizations:

Whosoever as an employee or agent of a business, demands, allows himself to be promised or accepts a benefit for himself or another in a business transaction as consideration for according an unfair preference to another in the competitive purchase of goods or commercial services.

This is distinct from the first paragraph of section 331, which describes basic bureaucratic corruption:

A public official or a person entrusted with special public service functions who demands, allows himself to be promised or accepts a benefit for himself or for a third person for the discharge of an official duty.

These are distinct from other sections describing bribery of judges, or voters, or delegates to the European Parliament, and more. Each describes in precise terms a particular act of bribery. Conceptual definitions do not bear a burden of such precision or distinction. Conceptually, bribery simply means a quid pro quo exchange that involves abuse or misuse of power or trust.

Extortion is considered by some to be the converse of bribery and by others to be simply a variation of bribery. Extortion occurs when an actor who holds a position of authority or trust demands payment (or some other personal benefit) by threatening to use that power in a harmful way. Jeffrey Boles attempts to distinguish payment requests initiated by the person holding the power: “Commercial bribery is a separate crime from extortion, as its germane element, as pithily stated by the Second Circuit, is ‘pay me and be assisted,’ whereas extortion’s germane element is ‘pay me or be precluded’” (Boles, 2014, p. 126).³ If, for example, a customs agent asks for a private payment in exchange for allowing goods to enter the customs territory, then that transaction would be co...

Table of contents

• Cover
• Title Page
• Part I Explaining and Preventing Corrupt Practices
• Part II Corruption – Cross-Sectoral Experiences
• About the Authors
• Index