Managing Corruption, Not Ethics

By Greg Unruh, Thunderbird professor

Lately, newspaper headlines practically write themselves. What’s a CEO to do? Some companies are discovering the advantage of managing corruption rather than ethics because the focus shifts to systems rather than individuals. Anyone who has been greeted by Microsoft’s error message “corrupted file” — just before the computers crashes — understands the impact of corruption on an overall system.

By focusing on the system within which individual decisions are made, the corruption perspective offers a larger and more integrative way to tackle ethical breakdowns. A corruption perspective sees ethical breakdowns as a complex failure, not just of individual morals, but also of the system in which individual decisions are made. Taking a corruption management perspective addresses a larger systemic context.

As often occurs during boom times, greed sets in, resulting in flagrant ethical lapses. In such circumstances, an organization’s ethics, not just the individual’s, need active management just like marketing messages, budget allocations and inventory. The consensus due jour is that the deeper failure lies in the corporate culture.

The managerial lesson is clear: if you want an ethical company, create an ethical corporate culture. While creating compliance systems is costly but relatively straightforward, managing culture is a very different — some say impossible — task. If ethical behavior is not already core to the culture, corporate leaders have a real challenge on their hands.

The move toward “ethics is culture” coincides with another movement that is having surprising success, the anti-corruption movement. This serendipitous confluence provides an opportunity for business to re-cast corporate ethics management in the broader, more systemic, perspective exemplified by the corruption approach.

Corruption is not only a global scourge; it is equally a business scourge. Estimates are that it adds between 20 percent and 100 percent to the cost of goods and 25 percent to infrastructure costs. For investors, the risk of total investment loss is between 80 percent and 100 percent in the most corrupt countries over any given five-year period.

To add insult to injury, the public often blames corporations more than governments for corruption. The anti-corruption movement focuses intensely on corporations and, perhaps ironically, this is actually a benefit for companies. The process drives corporations to reconcile their internal ethics management efforts with the demands of anti-corruption. Doing so has forced valuable new insights and perspectives. The way forward for companies is an integrated approach that incorporates the systems perspective of anti-corruption. Doing so provides an excellent opportunity to synergize ethics and corruption management.

For a company, systemic integrity starts at the foundation and builds upward: hiring people of character and then creating organizational systems and corporate cultures around them that provide the appropriate restraints and incentives. The approach requires corporate leadership to actively engage in shaping the external business context through cooperative engagement in anti-corruption efforts with business partners, civil society and government. Culture is, in essence, a set of expectations reinforced by the community itself.

Taking a corruption management approach requires fusing the insights of corporate ethics with the tactics used to fight systemic corruption. When successful it creates something simple and elegant: integrity. Companies can strengthen the integrity of their business environment and ensure its lasting success when they:

– Look for ethical candidates in the recruiting and hiring process.

– Minimize ethical “gray areas” and the potential for conflict of interest.

– Reward desired behavior using value-based measures, including integrity, excellence, teamwork and accountability.

– Ensure financial incentives that are coherent with ethics expectations.

– Protect employees from ethical risk.

Like Neanderthals in suits, some companies use stories as the principale way to perpetuate corporate culture. In setting ethical expectations, stories that exemplify ethical courage are key. And while stories cannot be created artificially you just have to look for them. Even simple observations — like spotting an employee running out to give a customer forgotten change — can become important lessons to be passed on. Stories, like the actions of mythical heroes, illustrate company values and transfer expectations in powerful and lasting ways.

Moving from a personal to a systems perspective can help business leaders better deal with ethics and corruption and achieve integrity. Integrity has a broad and powerful meaning. It means supporting the same ethical standards at all levels of the system, from the individual line employee to executive interactions with government officials. The reward is that when business and governance systems are freed of corruption, they generate more wealth and greater business opportunities for all participants.

Greg Unruh, Ph.D., is director of the Lincoln Center for Ethics in Global Management at the Thunderbird School of Global Management in Glendale, Arizona.