A MEROMORPHIC MODEL FOR DISCOURAGING CORRUPTION IN PUBLIC ORGANIZATIONS

Ioana Vasiu and Lucian Vasiu
"P. Negulescu" Institute of Administrative Sciences

Correspondence: Prof Dr Ioana Vasiu, Calea Dumbravii 34, 550324 Sibiu, Romania Tel: +(40) 722 633 006 Fax: +(40) 269 232960 E-mail: IoanaV2@excite.com

A MEROMORPHIC MODEL FOR DISCOURAGING CORRUPTION IN PUBLIC ORGANIZATIONS

ABSTRACT Corruption is a flagrant violation of the norms of trust and professional standards. What organizations do internally to prevent corruption is very important in the global equation of corruption control. In this paper, we propose to understand corruption as a phenomenon that can be discouraged; we use this insight to imagine people as neither already corrupt nor inherently corruptible and propose a meromorphic model for discouraging corruption in organizations. Our model can help improve the effectiveness of organization leaders with respect to discouraging corruption, and can be used in education and training programs. The model can also be expanded by adding new dimensions, as considered appropriate, and can form a basis for empirical research.

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INTRODUCTION Corruption leads to the rise of factions, of overmighty individuals (Pocock, 1975), and is especially dangerous when it is carried out in a systematic way, or when it is a means to penetrate political, administrative, or economic structures, with a view to exercise undue influence or capture economic sectors. Worldwide, corruption has a negative effect on development, economic freedom, and direct investment (Akhter, 2004; Voyer and Beamish, 2004; Habib and Zurawicki, 2002), undermines the ethical conduct of business, and can be a competitive disadvantage (Luo, 2002). Innumerable corruption cases in the press paint a ruthless picture of corruption without moral compunction, and the rich body of published material around the whole area of corruption reflects an increasing concern for the phenomenon (e.g. Burguet and Che, 2004; Celentani et al., 2004; Lambsdorff, 2002; Paldam, 2002; Lambert-Mogiliansky, 2001; Jain, 2001; USDoS, 2000; Treisman, 2000; Husted, 1999). The considerable body of literature indicates, empirically as well as analytically, that corruption is very dangerous for organizations, society, and economy, and that it is necessary to combat corruption by effective measures. Yet, in the management literature, insufficient attention has been paid to adequately conceptualize the phenomenon and to the internal actions against corruption, that must take place in organizations. In this study, we propose to understand corruption as a phenomenon that can be discouraged. We use this insight to imagine people as neither already corrupt nor inherently corruptible—a different view would endow corruption with a disturbing facticity, and produce a sense of futility, which would stymie organizations’ ability to discourage and prevent corruption. We argue against seeing corruption as a fact of life, which allows only for ex post interventions, and propose a shift from corruption and its aftermath to a meromorphic corruption-discouraging model. The study is structured as follows. In the next section, we look into definitional aspects and forms of corruption in organizations. Next, we suggest an approach to discouraging corruption in this kind of organizations and propose a meromorphic model. Finally, we outline implications for managerial practice and research. DEFINITIONAL ASPECTS AND FORMS OF CORRUPTION Corruption (Lat. corruptus) literally means alteration, putrefaction, or deformation. The phenomenon can be understood in many different ways (Dölling, 2003), depending on the ethics, morality, tradition, legal or civic virtue perspective taken. Each civilization recorded by historians had its own incidence of corruption, notions of moral values or justice, and proclivity for power and wealth. Although there is no need to have a definition of corruption that is universally accepted, a poor understanding of what

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corruption is can create problems of consistency and common understanding in organizations and may even hinder adequate, practical, and foreseeable responses. Corruption in organizations, viewed as the impairment of integrity, virtue, or moral principles, takes many forms, with different types of participants, settings, stakes, and techniques. In some jurisdictions, corruption is limited to the exchange of an act or omission on behalf of a public or private entity for an undue advantage, while in others it covers all forms of misuse of authority. According to local jurisdiction, there are different offense structures, actus reus, criminal intent (mens rea), or participation requirements, various prosecution systems, and several related offenses. Moreover, language ambiguity (Gordon & Miyake, 2001), overlappings and interchanges with other concepts (e.g. employee fraud or theft), make the confusion, in both lay and scholarly lexicons, and the existence of conceptual skirmishing, a natural thing (Gardiner, 1993). Sissener (2001) regards corrupt behavior as an act whose meaning can only be understood with reference to social relationships, in historically specific settings. Corruption is commonly defined as private individuals or organizations misusing a public office or resources for private power and/or political gains (Lindgreen, 2004), or in order to obtain an advantage or avoid a disadvantage (Argandoña, 2003). ACFE (2004) defines corruption as wrongful use of influence in a business transaction in order to get benefit for themselves or another person, contrary to their duty to their employer or the rights of another. The Convention against Transnational Organized Crime (UN, 2000) defines corruption as solicitation or acceptance by an official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties. For this paper’s purpose, we define corruption as abuse of power, influence, or resource in order to obtain an undue advantage, or to avoid or delay a disadvantage for them or another person(s). Regardless of how it is defined, corruption encompasses a broad range of behaviors, including (inter alia) giving or receiving bribes and unlawful gratuities (e.g., for securing contracts, market expansion, profit maximization, supply of resources or low labor cost), influencing the decision-making process of an officer or authority, or influence peddling, dishonesty or breach of trust, in the exercise of duty, withholding needed information, insider dealing, conflicts of interests, and even extortion (Gambetta, 1993). MODEL Corruption, according to Pocock (1975), appears as a generalized process of moral decay whose beginning is difficult to foresee and its progress is almost impossible to resist. Because corruption presents a major social danger, corruption offenses are prosecuted ex officio in all states. Further, there are numerous international agreements addressing corruption: United Nations Convention against Corruption (2004), Council of Europe Criminal Law Convention on Corruption (1999), Council of Europe, Civil Law Convention on Corruption (1999), OECD Convention on Combating Bribery of Foreign Public Officials

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in International Business Transactions (1998), Inter-American Convention Against Corruption (1996). Consequently, corruption control must be a major issue in organizations. Some of the measures generally accepted as necessary in corruption control include regulation of conflict of interests in certain positions, anti-corruption code, job rotation, proper procurement systems, internal and external controls, monitoring procedures, effective protective disclosure systems, and effective accountability and responses, which can lead to the prosecution of offenders, and to the establishment of the truth. Our model for discouraging corruption in organizations first addresses the need for reduced corruption propensity: the importance of staff selection, adherence to moral values, and the need for a code of ethics. We also emphasize the importance of strong leadership with respect to compliance with moral values and the code of ethics—if those from the high echelons of organization structure are not committed to ethical principles, do not see corruption as something very wrong, have no qualms about engaging in corrupt behavior or scruples in tolerating corrupt practices, than there is very little that can be done to discourage corruption in organization. Next, assuming compliance to be a complex function that incorporates the effectiveness of self-protection or self-defense measures, the probability that noncompliance will be discovered, the perceived probability of sanctions given discovery, and the inhibiting influence that sanctions exercise over the potential offender, our model also includes the following pillars: transparency, sanctions, and controls. Staff Selection UN (1997) believes that the problem of corruption is a problem of systems and organizations, rather than one of individuals. This view can also be found in Treviño & Brown (2004) and Anand, Ashforth, & Joshi (2004): according to them, bad behavior in organizations does not necessarily result from flawed individuals—instead, the organizational culture tacitly encourages or supports flawed behavior should be blamed. However, human nature’s tendency to inflict harm on others was acknowledged widely, from Aristotle to modern commentators, and there is an emphasis that humans are subject to a constant thrust toward what passion dictates (Bassiouni, 2004). Although there is no solid evidence that corruption is culturally determined, characteristics of particular people can make them more prone to misconduct than others. Corruption, a major violation of trust and professional standards, is not a crime of passion, spontaneous or emotional; instead, it involves calculated risks taken by rational actors (Braithwaite & Geis, 1982). Corruption is positively related to economic adversity—when corruption is latent as incentives for are greater—, power distance, and uncertainty avoidance (Getz & Volkema, 2001), and inversely related to wealth. Propensity to corruption is higher in the profit-driven cultures (Kagan & Scholz, 1984), where there is a premium on financial achievement or success— particularly if proper means to attain the set goals lack, corrupt transactions or practices, although illegal, are regarded as legitimate.

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Organization leaders should take into account the contexts that create incentives for corruption to exist and address the issues by policy instruments: the legal regulation hip, the economic carrot, and the communicative sermon (Bemelmans-Videc, Rist, & Vedung, 1998). Adequate staff selection should be viewed as essential in corruption control. Organization leaders must ensure that their people do not have a propensity for corrupt practices, and ensure that the actions of empowered subordinates are within acceptable bounds. Particular attention should be paid to personnel compensation, as financially disgruntled or downtrodden employees are more prone to corruption. While Maslow’s (1943) hierarchy of needs theory suggests that no need will ever be fully gratified, a substantially satisfied need no longer motivates. It is, therefore, critical that organization leaders understand what level of the hierarchy an employee is on and focus on satisfying needs at that level. Ethics The debate about human nature and its capacity for good and evil, right and wrong, and how to best control the impetus for negative tendencies by what reason dictates is age-old. Yet, we still lack a scientific method or model of determining what particular rule and rule compliance mechanisms would suit particular people or particular situations. There are many ethical dilemmas and opportunities to abuse trust and express greed in today’s world (Treviño & Brown, 2004), which can lead to corruption. The potential for violations increases when there is insufficient moral awareness, and when it combines with techniques of neutralization. Corruption, a moral condition that can affect, with an increasingly corroding effect, anybody, must to be constrained by what reason, backed by strong leadership, dictates. Moral awareness (Butterfield, Treviño, & Weaver, 2000) is an important first step in making ethical judgments, and in realizing the very reprehensible nature of corruption. Moral beliefs, which refer to the extent to which a particular improper act is perceived to be morally offensive, help define appropriate behaviors—those who view an act with opprobrium will be much less likely to engage in corrupt practices than those who are morally tolerant or ignorant. Ethics, the principles of conduct governing an individual or a group, represent an important issue for organization leaders, and the subject of a rapidly growing literature, broad in scope, and multifarious in content (Singh, Carasco, Svensson, Wood, & Callaghan, 2005; Thomas, Schermerhorn, & Dienhart, 2004; Banaji, Bazerman, & Chugh, 2003; Gordon & Miyake, 2001; Fort, 2001; Donaldson & Dunfee, 1999; Denhardt, 1997; Treviño & Youngblood, 1990). Ethical behavior presents subtle issues of rightness or fairness, and is defined by Lindgreen (2004) as individuals or enterprises adhering to non-corrupt work or business practices. Managing ethics can be accomplished through formal ethics codes (Kaptein, 2004) and programs, which should be viewed as signals from the top levels for ethical behavior (Adams, Tasachian, & Stone, 2001). A code of ethics, according to Langlois and Schlegelmilch (1990), is a statement setting down principles, rules of conduct, codes of practice or organization philosophy concerning
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responsibility to employees, shareholders, consumers, the environment, or other aspects of society external to the organization. The determinants and content of such codes, as well as the commitment to enforcing them, vary among organizations (Singh et al., 2005; Svensson & Wood, 2004). The ethics code must define (inter alia) what practices are corrupt, make very clear that such practices will never be tolerated, and regulate aspects of ethical behavior (e.g. gifts and entertainment expenses, political campaign contributions, and policy against small-scale corruption) (Lindgreen, 2004). Organization leaders must be actively involved in value formulation, code drafting and updating, and educational program design. Implementation and monitoring are critical to their effectiveness and sharing at all organizational levels; as Kernaghan (2003) argues, getting the statement right and its implementation wrong poses the risk of raising cynicism, and dwindling morale in organization. Organization leaders must not just condemn and sanction corrupt practices—they must support ethical conduct on an ongoing basis through leadership, reward, and other cultural systems (Treviño & Brown, 2004). Transparency Trust articulates generic procedural norms that seek to check the inherent opportunities and temptations for abuse (Shapiro, 1987). Because of information asymmetries, relations are vulnerable to misrepresentation, deception, distortion, fabrication, or falsification of information by those in positions of trust. One important characteristic of corrupt transactions is secrecy, which impedes the ability of firms to bid for contracts (Evenetta & Hoekman, 2005), and allows corrupt contracts to take place in a restricted environment, with little or no transparency and limited participation. Transparency must be regarded as a precursor to corruption reduction. While there are legitimate reasons for some secrecy or confidentiality relating to certain operations (e.g. manufacture, procurement, holdings, possession, sales, or transfers), excessive secrecy subverts accountability and creates an environment in which corruption can thrive. As extant theory argues, transparency contributes to the reduction of corruption in that it helps identify those currently engaged in corrupt practices and in creating discouraging environments for those tempted by corruption; therefore, organizations should put in place robust polices and procedures to ensure transparency. The ability to access, interpret, or use information plays an important role in corruption control; however, one difficulty lies in defining what type of information should be disclosed, to whom and at what step of a process. Furthermore, through overloading, the relevance of information can be diluted; too much information makes it difficult to retain what is relevant, and in some situations could be as dangerous as the lack of information. Quality of information can be ensured through verification of external agencies or auditors or standard setting organizations. The criteria and methodologies used to assess information as well as changes in such methodologies should be fully disclosed. Accounting standards facilitate the interpretation, reliability, and compatibility of information across organizations.

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Sanctions Motivation for rule compliance as the desire to earn approval and respect of others should be accompanied by deterrence mechanisms. Makkai & Braithwaite (1994) believe that deterrence is most effective when there is a realistic expectation of apprehension, a fear of corresponding sanctions, and a reasonable expectation of sanctions implementation. By the time corruption is discovered, it has already occurred, and sanctions cannot directly avert corruption itself. Moreover, no one proved a direct link between tough sanctions for corrupt behavior and a decreased incidence of that behavior; yet, only fear of imminent sanctions that exceed the cost of compliance would make undue profit-seekers to refrain from corrupt behavior. Sanction schemes must be aligned effectively with the drivers of criminal behavior. The importance of a sanction lies in the involvement of culpability and the sanction’s character. Sanctions should make an example out of the wrongdoer and send the clear message to others who might violate regulations—additionally, stigma, disincentive to crime as public punishment, can play an important factor in discouraging corrupt practices. Beyond a threshold, however, further increases in intended expected sanctions create incentives for wrongdoers to extend corruption, and ensuing impunity results in a fall of actual expected sanctions that yields more rather than less corruption. Nonetheless, when sanctions are not tough enough to offset the potential profits available from corruption, organizations can find themselves in a deterrence trap. Therefore, sanctions should be proportionate, effective, and dissuasive. Sanctions can be formal or informal (e.g. confiscation of bribes, loss of privileges or promotion, etc.), and can be classified as preventive, punitive, and remedial. Preventive sanctions are generally objective, which means they may be applied even if there is no guilt or negligence in the illicit behavior. These sanctions cannot be transmitted to another person due to the purpose of such sanctions, which is to stop the person from pursuing a conduct that can create danger. Punitive sanctions are applied for culpable practices (intentional act or negligence) and have a personal character, which means that other persons who were not involved in the infringement cannot be held responsible to execute the sanction. Remedial sanctions are applied to culpable practices, however, in certain situations, can also be applied to a non-culpable illicit conduct, as long as a prejudice has occurred. Controls A weak system of controls should be seen as enticing to improper behavior, whereas effective controls encourage adherence to organization policies. Controls should be a mix of (inter alia) authorization, recording, and accounting control over assets, liabilities, revenues and expenses, internal monitoring, auditing, whistle-blowing facilities and protection, and creation of compliance offices (Gordon & Miyake, 2001). Selecting appropriate control mechanisms requires the balancing of numerous factors; specific norms and criteria are necessary in order to assist policy makers in selecting appropriate control mechanisms and for reviews. An outcome-oriented approach to controls

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implementation should include education and training, to ensure that certain skills exist at required levels. Regular staff rotation is a precautionary measure against corruption, which can significantly reduce the levels of corruption and the frequency of inefficient decisions due to corruption (Abbink, 2004). Transactions authorization or approval should observe limits to amounts, and include several persons—the more people are involved in corrupt practices, the more likely it is that the conduct will be, eventually, disclosed. Nobody should be in a position to both commit and conceal corrupt practices in the normal course of their duties—different people should be assigned the responsibilities of recording transactions, authorizing transactions and maintaining custody of assets. All financial transactions should be traceable from the original documentation to the accounting records, and vice versa. There should be controls within the record-keeping function, which would ensure that no transactions have been omitted, no fictitious transactions were inserted, and that all transactions are accurately represented (e.g. automated control totals, and validation checks that allow only proper transactions to be input).

FIGURE 1. A meromorphic model for discouraging corruption in organizations.

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CONCLUSION Corruption is a worldwide problem, a flagrant violation of the norms of trust, and ethical and professional standards. The primary costs of corruption include higher costs and risks for organizations; however, potentially secondary costs may be equally harmful: reputation damage, diminished faith in organization leaders, and erosion of public morality. Consequently, discouraging corruption must be considered part of the overall effort to create a solid foundation for fair development, justice, and effective governance. Corruption combat must involves legal, economic, and organizational means and address all actors of the corruption equation. According to Pocock (1975), however, the tragic process is that corruption is visible only after it had taken general hold, so that old remedies may no longer apply. Constructing a society in which corruption is unknown or a rare event takes a seismic shift away from the short-term mentality (Seglin, 2003), and actions that frighten to death the corruption culture globally. What organizations do internally to prevent corruption is very important in the global equation of corruption control. Only organizations that respect legal regulations, moral values, and the needs of human beings are legitimate, therefore entitled to exist. Fighting corruption in organizations must involve important ex ante measures. Corruption should be understood as a problem of poor governance and addressed within a broader framework, taking into account essential dimensions, such as rule of law, ethical considerations, and others. Condoning, tolerating, or encouraging corruption, even in a circuitous or tacit manner, is tantamount to mismanaging the organization. Corruption must not be regarded as a fact that has to be accepted, encouraged, or condemned, but as a phenomenon that must be analyzed and discouraged. Effectively discouraging corruption in organizations is, obviously, a complex challenge. Organization leaders must understand the issues, drivers, and forces that surround corruption, be able to apply their theoretical knowledge effectively to practical problems and come up with efficient solutions to those issues or problems. In this paper, in a conceptual-analytic research approach, we looked into definitional aspect and forms of corruption in organizations, challenged the facticity of corruption, suggested an approach to discouraging corruption in organizations, and proposed a meromorphic model that focuses on the issues we have felt are most salient. Corruption discouraging must be viewed as a process, and should be approached in a synergistic and systemic way. The apparent boundaries between the pillars of our model are conceptual, not fences that would prevent a balanced and integrated approach. Our model can help improve the effectiveness of organization leaders with respect to discouraging corruption, and can be used in education and training programs. The model can also be expanded by adding new dimensions, as considered appropriate, and can form a basis for empirical research.

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