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Common Cultural Traits of Corrupt Firms

Posted April 22, 2016


A new study released through the Center for the Advancement of Public Integrity at Columbia Law School analyzed common traits of corrupt organizations, and found they all have characteristics regularly missed by compliance that should serve as red flags to potential problems.

The brief What Do Corrupt Firms Have in Common? by Alison Taylor, a director at Business for Social Responsibility, is based on a review of academic literature as well as in-depth interviews with 23 prominent lawyers, investigators, scholars, and policymakers with firsthand knowledge of the inner workings of dozens of corrupt firms. 

Taylor’s study found a highly consistent view of how a culture of corruption manifests within an organization, seeming most likely to arise in those where growth is a fetish, insecurity is rampant, and high performance goes unquestioned. “Rules and processes put in place to promote integrity may be selectively enforced and easily evaded, as shown in many recent cases under anti-bribery statutes,” Taylor states.

A culture that emphasizes that “the ends justify the means” may exacerbate this problem. Employees may face sales targets higher than industry peers, justified by the need for market dominance at any cost. As one interviewee commented: “There are techniques to exaggerate the urgency and seriousness of the need to win — the sense that ‘this is what it takes to survive’ — which short-circuits ethical reasoning.” Reducing corruption risk therefore requires an active emphasis on values and behaviors that consider how growth is achieved, not just whether it is achieved. This may require creating an alternative narrative about corporate identity and success criteria, as well as a long-term commitment to ethics, sustainability, and engagement with all corporate stakeholders, not just investors.

Other cultural traits of organizational corruption highlighted in the brief include:

Leadership:

Leadership is complacent, hoards information, disperses accountability, avoids responsibility, and creates plausible deniability. High performers are venerated and not questioned.

Structure:

Devolution of responsibility and autonomy with limited oversight makes groups isolated.

Decision-Making and Authority:

Strongly hierarchical and directive, top-down, opaque, myopic.

Incentives:

Discretionary bonuses and unrealistic targets, set without regard to market conditions or employee behavior.

Values and Beliefs:

A sense of fear, necessity, insecurity, powerlessness, and rivalry. In-group language that relies on humor and metaphors of war and sport.

Norms and Behaviors:

Low transparency, secrecy, fear, and a lack of pride in the organization.

Archetype:

The archetypal corrupt team is based far from headquarters, under a secretive but domineering leader. The team is widely regarded as successful and high-performing, but guards information and avoids scrutiny. Team members are fiercely loyal to each other and driven by a sense of urgency, insecurity, competition, and short time horizons.

Taylor says that while employees can often easily identify teams (or leaders) with the characteristics described above which are often at the root of ethical and corruption problems, they are unlikely to be detected by standard compliance processes. She suggests that “by focusing on corporate culture, we can identify problems hiding in plain sight, and target interventions at the areas of highest risk.”