Ever since the colossal collapse of Enron in 2001, corporate scandals have rocked some of America's most powerful boardrooms. One after another, corporate giants like Fannie Mae, WorldCom and even the intractable Martha Stewart have been brought to their knees by charges of corruption.
No longer can we believe that corporate scandals are the rare indiscretion of an overzealous executive. As each day's newspaper reveals charges leveled against yet another well-respected organization, we're left to shake our heads in wonder. How can things get so out of control? And just who are these people who blatantly deceive their clients and friends?
Understanding organizational corruption requires that we acknowledge the powerful symbiotic relationship that exists between an individual and his or her organization. Individuals alone are rarely "corrupt" -- organizations have tremendous power in shaping individual behavior that, in turn, shapes daily business practices.
Recognizing the role that organizations play in creating systemic corruption represents a pioneering approach to studying corruption. Blake Ashforth, management professor at the W. P. Carey School of Business, was among the first to study corruption from the management perspective.
Together with Vikas Anand, an assistant professor at the Sam Walton College of Business Administration at the University of Arkansas, Ashforth shared the results of his research in the chapter, "The Normalization of Corruption in Organizations," for the 2003 text Research in Organizational Behavior.
"You would have a hard time picking corrupt individuals out of a lineup," says Ashforth. That's because "those people" look an awful lot like us. They are parents, church leaders, neighbors and friends -- genuinely good people who have made extraordinarily poor decisions.
Those decisions are not made in a vacuum. Corrupt acts in an organization usually involve knowing cooperation among multiple employees. Rarely is corruption limited to just "a few bad apples."
Is your business climate ripe for corruption?
Corruption occurs when someone misuses his or her position to pursue personal or subunit benefit. It can be as small as someone using the Internet for personal use during work time or as large as Arthur Andersen shredding documents to conceal its role in Enron's fraudulent financial activities.
It's tempting to believe that today's corporate scandals began as the brainchild of a morally bankrupt executive. But the truth is far less lofty. Corruption usually starts as an accident -- a bad decision made in the heat of the moment, under pressure and with incomplete or inaccurate information for guidance. If that behavior is rewarded, it becomes institutionalized, creating bad barrels that later produce more bad apples.
No institution is immune. Scandal has touched nearly every institution from sports to politics and even religion. But Ashforth believes that business culture is particularly vulnerable to corruption. "Business values in general tend to include an amoral view," Ashforth says. "Competition, enterprise and efficiency are the driving principles and that sets the stage for an amoral action to be a slippery slope to immoral behavior."
Sadly, there's little doubt that in the short term, it does pay to cut corners and be unethical. But there are enormous long-term costs for engaging in this type of behavior. James H. Saunders, a certified public accountant and treasurer of The Association of Certified Fraud Examiners, says Enron is a good example of what can happen when companies don't take corruption seriously. "Executives wind up being investigated, companies go bankrupt and stockholders have no money. It's a bad scene."
The games people play
In the hindsight of headlines and media coverage, it's easy to see the executive being led away in handcuffs as a corrupt individual. But that same person probably perceives himself as ethical within the context of their organization. "These people sincerely believe that this is the way things are done at their company," Ashforth says.
Indeed, by convincing themselves that their behavior really is not unethical, employees can engage in corrupt business practices without feeling any pangs of conscience. Corrupt individuals depend on rationalizations to justify their behavior, including:
Denying responsibility: actors convince themselves they had no choice but to participate in unethical behavior.
Denying injury:if no one is hurt, the behavior isn't really unethical.
Denying victims: blaming violated parties for what happened on the grounds that they "deserved it."
Social weighting: this rationalization includes condemning anyone who questions their actions as a way of mitigating the charges. Individuals may also focus on other companies that are "worse than we are" as a way to deflect responsibility.
Appeal to higher loyalties: unethical behavior is justified if it was "for a good cause" like loyalty or higher ideals.
Metaphor of the ledger: using seniority or other variables to justify unethical behavior on the grounds that they have earned the right.
As a group, department or organization systemically adopts rationalizations, employees reinforce each other's behavior and corruption is accepted as valid business practice. But this is not to say that individuals are not aware that their behavior violates societal norms –- that's why people don't talk about their actions outside of work. Instead, they compartmentalize their lives so that work becomes a separate world with different rules and norms -- a world that neighbors and friends wouldn't understand.
Socialization is another critical factor in understanding how corruption becomes institutionalized. To survive, newcomers must be initiated into the organization's corrupt systems. "You cannot coerce corruption in an organization because people will rebel," Ashforth says. Instead, organizations subtly socialize newcomers by rewarding attitude change toward unethical behaviors, gradually introducing corrupt activity, and creating situations where individuals feel they must compromise their values to solve problems. The key is to convince the newcomer that she or he has a choice all along when in fact, they really don't.
"Leadership is the biggest factor in determining whether an organization will accept corruption," Ashforth says. Fraud investigations have uncovered corruption in large and small companies, family-owned businesses, community and public service organizations, even churches.
"Anywhere there's money," Saunders says of his experience as a fraud investigator. While it may be difficult to recognize a corrupt individual on sight, there are some warning signs that should tip you off that something's not right. If company leadership pushes for numbers without asking how they were achieved, rewards and promotes individuals with a history of questionable decisions or action and blackballs people who ask too many questions, your antennae should go up.
If in doubt, apply the Headlines Test -- imagine the next day's paper features a story about the decision or action you are contemplating. Would it make sense to others? Does your reasoning seem valid? This simple strategy helps people see their actions as outsiders would -- before the headlines hit.
Charting a course of change
Any virtue requires constant vigilance, Ashforth says, because it's the small things that get us in trouble. To demonstrate a commitment to ethical behavior, a company must clearly articulate its value and ethics, and then create goals to enshrine those ethical practices. "People will do what they are rewarded for," Ashforth says. "But they must believe it's true." Nothing undermines an organization's reputation faster than talking about but not practicing noble ethical principles.
It's always easier to prevent corruption from taking root than to solve it after the fact. But if you or your organization is ever faced with charges of unethical behavior, resist the urge to deny, stonewall or scapegoat. "There's a natural tendency to blame individuals for outcomes -- not impersonal, faceless institutions," Ashforth says. Stubbornly insisting that just a few bad apples are responsible cripples an organization's ability to challenge its unethical practices.
Often an organization is just too mired in corruption to be helped from within. In those cases, a strong external force -- often a lawsuit or criminal charges -- is needed to bring about change. Organizations can recover and even thrive after a bout of corruption, but it requires that current leadership -- scarred by too many years of rationalizations and excuses -- be replaced with new management that has a clear mandate to clean up the organization and the authority and support needed to get the job done.
Unfortunately, lower-ranking individuals seldom can change the organization from within. Without a total commitment to ethical practices by the leadership, individual initiative is just not enough to change the climate. "Sometimes people think they can move their way up the ladder until they gain enough authority to change the way business is done," Ashforth says. But by the time you reach the top, you have already been socialized to the organization's rationalizations and structure. You just don't realize it.
If you are convinced that your company has adopted corrupt business practices, Ashforth says there are really only two choices: put up with it or switch jobs. While whistleblowers make exciting fodder for the movies, the hard truth is that most are seen as traitors and lose their careers. "Unfortunately, we do pay a high price for doing the right thing."