The Characteristics of Corrupt Corporate Cultures

bsr-ataylor-250x344Alison Taylor, the Director of Advisory Services for BSR (a global non-profit organization focused on sustainability) contributes the following article, which was originally posted on the Global Anticorruption Blog.

Despite all the investment in corporate anti-bribery compliance programs, supported by a lucrative consulting industry dominated by investigation companies and accounting and law firms, violations of anti-bribery laws, and firms’ own compliance policies, remains widespread. Why? The usual explanations focus on the external environment (“That’s just the way they do business over there”) or on “rogue employees,” but tend to neglect issues of “organizational culture”—how groups and teams behave when they might have a corruption problem. Yet organizational culture, structures, and incentives have been powerful factors in causing professionals to indulge in systemic corrupt practices.

But what, exactly, are the cultural drivers of corruption? What do a “culture of compliance” and its converse, a “culture of corruption,” actually look like? To find out I conducted in-depth, qualitative interviews with 23 experts on anti-corruption and corporate ethics. My questions were simple: What is the culture like in a corrupt organization? Can we generalize about leadership, decision-making, incentives, values, and behavior in corrupt organizations? Can we use these findings to understand the characteristics of an ethical culture?

The answers were revealing, and strikingly consistent in identifying the characteristics of organizational cultures prone to corruption. These traits, which I will summarize below, don’t guarantee that an organization will be corrupt — but the more of these characteristics are present, the more vulnerable an organization is.

  • A fixation on growth, especially meeting short-term targets, coupled with a belief that the ends justify the means. Corporations exist to make money, of course. But an overwhelming emphasis on rapid growth makes any organization vulnerable to corruption. Pressuring individuals to meet high sales targets — and rewarding this to the exclusion of behavior or ethics — is a significant causal factor in corruption. Sales-based compensation targets set without regard to conditions in the local environment are considered a particular red flag for corruption. This corruption risk factor is compounded by the extent that a culture emphasizes that ends justify means. Companies tend to consider financial results and reporting in fairly short time horizons, so it is relatively straightforward to build a mood of commercial necessity that justifies treating compliance processes as pro forma, or ignoring them entirely. a sense of urgency is the most common rationalization for undermining or ignoring ethical and compliance commitments. Moreover, even when there is not a dominant corporate culture that “the ends justify the means,” there is still often a reluctance to question the basis of high performance by teams or individuals. This tends to become self-perpetuating, leaving these high-performers increasingly autonomous. When the basis of success is illegitimate, this can help perpetuate corruption via the natural inclination to replicate the behavior of prominent contributors. The behavior can become normalized and accepted within the team. Such teams tend to be little-understood and to maintain high boundaries that limit information flow to the rest of the organization.
  • Leaders engage in selective blindness to preserve plausible deniability.Leadership is the most critical factor in determining whether an organizational culture is vulnerable to corruption, especially because employees tend to mirror leaders’ behaviour and values. Arrogance, complacency, and opacity are leadership characteristics that tend to encourage corruption. Furthermore, a lack of engagement with business conditions on the front line allows leaders to plausibly deny knowledge of corrupt activities; indeed, some leaders seem to purposely encourage a lack of transparency so as to maintain plausible deniability.
  • Complex organizational systems that diffuse individual accountability and create fiefdoms. The realities of doing business across time zones, geographies, and product lines often require complex organizational structures and shared responsibility. And to some extent, this can be helpful: autocratic command-and-control structures can make employees reluctant to share problems with managers for fear of punishment, and centralized control systems may also have insufficient knowledge of conditions in remote locations. However, these complex organizational structure and devolution of responsibility can also create corruption risks, for two main reasons. First, although shared responsibility and empowerment may bring many benefits, but they also risk diffusing accountability—fighting corruption and ensuring compliance may always seem like someone else’s problem. Second, granting a high degree of autonomy to a particular division is risky, because so much will depend on the qualities and character of that particular division’s leader.
  • Language and social processes are used normalize or legitimize unethical behavior. Language, after all, is a powerful tool in helping drive behavior in organizations. The frequent use of euphemisms to describe corruption and bribery is almost universal across cultures, reflecting a desire to diminish the impact and sense of wrongdoing. In corrupt organizational cultures, the use of euphemisms is widespread, as is the use of language suggesting the members of the team are an “in group,” with their own norms, and where loyalty to one another is paramount.

The archetypal corrupt team, then, would seem to have the following characteristics: it is based in a location far from headquarters, where it successfully meets highly challenging sales targets under a keenly directive, controlling leader. The team is widely regarded as successful and high-performing, though mystique or confusion attends the basis for its performance. Information is synonymous with power and is tightly held. Individuals in the team are fiercely loyal to each other and are driven by a sense of necessity, insecurity, competition, and short time horizons. There is heavy use of in-group language and probably euphemisms and metaphors of war and sport.

Most companies have teams and leaders like this; employees can often identify them easily. (If the team in question is the C Suite, expect problems for the entire organization, rather than for a particular division.) The individuals leading these teams are probably powerful, high-status personnel who command significant revenue. While such teams and issues are unlikely to be detected by any standard compliance process, they often lie at the root of ethical and corruption problems precisely because they evade attention. By focusing on the cultural dimension, we can identify the problems hiding in plain sight. This can, in turn, help target investigative and compliance interventions at the areas of highest risk.

Read the original post at the Global Anticorruption Blog.