Philosopher and novelist Ayn Rand recognized in her masterpiece “Atlas Shrugged” that corruption leads to the interference of trade and, eventually, to a doomed society.
Several different studies and articles confirm the negative consequences and costs of corruption for a country.
But it does not stop there. As business is part of society, corruption also dooms companies.
The known corporate corruption cases of the past show that it is impossible to control bribery and limit it to just one area or region. Even if corruption is practiced only in receptive sectors and/or countries, it is not a sustainable business strategy.
The infection can begin with one simple bribe
Companies are like living organisms that can be infected by the virus of corruption.
Similar to a viral contagion, corruption will spread throughout an organization if not treated intensively at the onset of symptoms with an antibiotic called “zero tolerance.”
To illustrate this point, let’s imagine that a sales employee pays a bribe to a procurement person at a potential customer’s company to ensure a project win. From this point in the decision-making process, the combination of price and quality plays only a subordinate role.
The winning factor is the bribe.
Inside the selling company, the impact is a decline in the importance of production and project management relative to sales. Management attention and employee focus shifts to sales, as this function is considered most valuable for the company.
In this situation, the selling company ensures business by strengthening relationships through illegal payments.
Production and project management employees are less motivated, as they feel they are no longer valued.
In response, these teams produce lower-quality work. Poor motivation leads to a decreased sense of employee loyalty, which can result in higher rates of theft, sabotage, internal fraud and employee turnover.
Meanwhile, management loses interest in how tasks are achieved, preferring instead to focus only on sales results.
The virus easily spreads from department to department
The growing infection soon spreads to the procurement department. As the internal priority is clearly the “successful” sales department, procurement loses its independence and is now advised by sales.
Procurement is pushed to use certain providers, based on whether the bribery model requires a third party or if the supplier is a family member of the prospective customer. As with the production team, we find the same effects of employee demotivation.
Corruption is not part of a culture, but a learned behavior often used to create a shortcut through complex legal environments. Many companies have an extensive system of guidelines, policies and tools.
Employees who see that bypassing external laws is acceptable corporate behavior may also assume this practice applies to internal regulations.
Conflicts of interest can increase, as internal connections become more important than the quality of employee output.
A common result is that talented employees offered the opportunity to work elsewhere will leave, while less talented employees remain.
In addition to the psychological effects on employee behavior, corruption also affects transparency and internal processes.
Winning a project with a bribe sends the wrong message to the development team, as they can only analyze the relationship between price and quality to the project win rate, but cannot include illegal payments as a key factor.
The infection starts effecting quality of work, competitive edge
Due to this hidden information, the development team wrongly concludes that the company’s solutions are competitive and that investment is unnecessary. In contrast, competitors that work with full transparency foster the development of better solutions.
Over time, the company that succeeds because of bribery loses its competitive edge. To compensate for this weakness, it has to increase the size of bribe payments – a situation that the potential recipients exploit.
Eventually, the bribes are not large enough to justify the difference in competitiveness. And if a significant number of talented employees have left to work at another company, it will be difficult to switch strategies to foster the development of superior products or identify less costly production methods.
By this time, the virus has also infected the bribed company. Because of bribe payments, the procurement employee has selected a sub-optimal solution for the company. Now this company is not using the best and/or the most cost-effective materials for its own production.
It becomes less competitive and no longer offers attractive solutions. A sales employee working for the bribed company needs to find another factor to win business, and may be tempted to offer a bribe.
You can kill the virus
If we see a company as a living organism, then some kind of preventive treatment should be prescribed for this disease.
Compliance workshops can work much like vaccinations. With relevant case discussions and role-playing exercises, employees can learn about potential situations they could face, how to react, and what consequences could occur.
Like an antivirus, this knowledge stays inside the employee and can be activated when needed.
Bureaucracy provokes corruption and vice versa.
To avoid this downward spiral, a company should establish internal processes that are as simple as possible to ensure transparency and employee accountability. Compliance Officers cannot do their jobs only from behind closed office doors.
They must be easy to reach and well-known across the company. Trusted employees can be offered the additional role of “Compliance Promoter,” and IT tools can ensure that an anonymous reporting system is available 24 hours a day.
Compliance training sessions cannot be limited to presentations about rules and regulations. It they are, employees will only behave if they feel controlled.
Instead, companies need to establish a values-based culture where employees understand their role inside the organization and how corruption could affect their job.
In this culture, everyone is equipped to face difficult situations – and not just employees in typical risk groups such as sales or procurement.
Is your company protected against this kind of “corruption contagion”? What kinds of “vaccinations” does your company have in place to stave off bribery and corruption?