Why firms may be addicted to the corruption habit
After major destruction, either man-made or natural, it isn’t unusual to see looters. Maybe that’s why David De Cremer surveyed the ruins of our recent financial crisis and was not surprised to find even more corruption.
While most of us want to avert our eyes in the face of disaster, we need to face a nasty reality: irresponsible behaviour of self-serving business leaders are often culturally ingrained. Are there steps organizations can take to break corrupt habits? Yes. But first it’s important to understand the problem.
Financial corruption such as fraud, bribes and misrepresenting crucial information two decades ago was seen as a somewhat rare event; nowadays, it is commonly accepted that it takes place in virtually every organisation. Indeed, the Corruption Perception Index 2009 (published by Transparency International) indicates that on average, two out of three companies report internal cases of corruption. Moreover, companies not only suffer from corruption but also engage in unethical activities themselves.
Contrary though it may seem, crisis itself appears to breed further corruption within companies. Indeed, evidence is mounting that the present financial crisis has actually promoted acts of corruption. The idea that corruption and fraud can be propelled by the current financial situation is a conclusion that many find puzzling.
Winning at any cost?
Both behavioural economics and social psychological researchers have shown that people have weak stomachs for loss. So much so, that fear of loss is a greater motivator than is anticipation of gain. Self-preservation drives people to maintain the status quo. One way to do this is to take more risks. In other words, people are actually more motivated to engage in risky behaviours to avoid loss rather than to achieve gain. In the context of a financial crisis, when looking at a situation in terms of losses, corruption is never far away. In fact, recent field surveys show that many employees expect more corruption in the future and admitted they are not wholly reluctant to use unethical means to achieve their goals.
Psychologically, people and organizations defend their own actions as more moral and fair than those of others. Moreover, they also underestimate the negative impact of their actions on the long term. Consequently, the abuse of authority and power often leads to the rationalization of events or situations that harm the self-interest of the organization.
According to Max Bazerman and Michael Watkins (who defined the term), “predictable surprises” occur when leaders have all the data and insights available to recognise a potential negative outcome, but fail to respond with effective preventative action because of psychological, organisational and political vulnerabilities.
When leaders become blind to these small acts that could be seen as fraud and corruption, there is a danger that the behaviour will become endemic. Too often we forget that people have a hard time leaving the status quo behind. What this tells us is that that the act of corruption in times of crisis may, in fact, have been transformed into a habit, one that is hard to change. To combat this trend, managers must move quickly to:
Create awareness of the habit Organisations have to become aware of the behaviours they habitually demonstrate in times of crisis. They must fight the inclination to cling to these habits and realize that corruption will readily root if the company is not alert to this potential problem.
The corporate world is not a place in which one desires to be vulnerable to the actions of others. In the extreme form, a crisis can escalate into a state of distrust in which the parties become defensive towards each other and information is not shared — or is even misrepresented — to preserve their own interests.
A climate of distrust encourages people to think more creatively — and perhaps unethically — about ways of bending rules and demands. The expected response is to implement new rules to prevent the same failures from re-occurring. These rules eventually fail because people and organisations prefer to stick to the comfortable status quo.
Show commitment to breaking the habit Beyond lip service, firm action is required through which the leaders’ public disapproval can be signalled. Further, the word “crisis” sets off alarms and puts people on guard. Instead of seeing a crisis, leaders could have talked about an opportunity to promote new efforts, gain perspective and actively decrease distrust. However, this did not happen. Unfortunately, we can confidently say that the emergence of corruption as a result of the financial crisis is not a surprise. Worse, it seems to be predictable.
Be prepared to change one’s own habits One can only achieve this by realising the impact corruption has on others. Question your motivation and, if self-interest is what comes up first, choose to correct your course for the good of all.
We have seen that implementing new regulatory and control systems to limit unethical and corrupt behaviours may not strike at the heart of the problem. Even though such control systems do provide a strong external incentive to display right and moral behaviour, the corporate world must expose bad habits and focus on ways of re-training the behaviour.
Show perseverance as an organisation The goal is to eliminate corruption from the organization’s DNA. Reward ethical behaviour and seek to make it sustainable even when the competition gets tough and unethical deeds seem like a better short-term response.
David De Cremer (ddcremer@london.edu) is Professor of Behavioural Business Ethics at Rotterdam School of Management, Erasmus University and Visiting Professor at London Business School.