scorecardresearch
Sunday MBA

We must understand corruption to fight it

Sunday MBA provides ideas on running better businesses and succeeding in the modern workplace, this week from MIT Sloan Management Review and Gregory Unruh, the Arison Group Endowed Professor at George Mason University in Fairfax, Va.

The scandal at FIFA, soccer’s international governing body and organizer of the World Cup, is a teaching moment for managers who want to root out corruption. News coverage has focused on the personalities of implicated individuals, but such a focus on personal morality muddles executives’ understanding of what corruption is.

Defining corruption

Many managers can’t clearly define corruption. And if you can’t define something, you certainly can’t manage it when you encounter it. While many definitions focus on dishonest abuse of power or moral depravity, I prefer the precision of the engineer’s definition:

Advertisement



Any organized, interdependent system in which part of the system is not performing duties as originally intended to, or performing them in an improper way, to the detriment of the system’s original purpose.

The focus here is on a “system” in which a component is failing. So a bridge, for example, is an interdependent system of engineered beams and trusses that, when whole and complete, will sustain your car as you drive across the river. But if part of the bridge is corrupt — say a beam has rusted through — then part of the system can’t work as designed, and the bridge might collapse.

A business can be seen as an organized, interdependent system. Identifying corruption in such social systems is straightforward: When the parts work as designed, all stakeholders can get the maximum performance — and thus maximum social benefit — from them.

The “parts,” however, are not mechanical; they are human decision makers that have certain decision-making rights and duties. When decision makers exercise their duties responsibly, the system works as designed and society benefits. When they don’t, they undermine the performance of the system and the achievement of its social goals.

Advertisement



Corrupting other systems

The engineer’s perspective on corruption gives insight into the role of corporate social responsibility. Social systems are actually composed of systems within other systems. Take that bridge again. It is part of a much larger network of tunnels, highways, and toll roads that constitute a transportation system. When the system is whole, it ensures that people and products efficiently get to where they need to be.

But when part of the system is corrupted, it lowers the performance of the whole and society suffers. Think of Bridgegate back in 2013, when in an act of political payback, New Jersey Governor Chris Christie’s staff closed two of the three eastbound lanes heading into New York on the George Washington Bridge. In this way, the corruption in one subsystem, the George Washington Bridge, spread to undermine the function of other social systems.

From this perspective then, we can understand corporate social responsibility and sustainability as ways of ensuring that corporate systems do not corrupt the larger social and environmental systems in which they are embedded.

FIFA, again

FIFA also provides an example of this type of corruption. Brazil, which hosted last year’s World Cup, has high-strung soccer fans and high passions have led to stadium bloodshed, which in turn led Brazil to outlaw the sale of alcohol at soccer matches in an effort to reduce violence and enhance public safety.

Advertisement



But for FIFA and its sponsors — one of which is Budweiser — the ban was unacceptable. Brazilian politicians rolled over and lifted the ban. FIFA’s actions, in effect, corrupted the Brazilian political system in a way that served the interests of FIFA and its sponsors, but endangered the welfare of the Brazil’s citizens and sports fans.

FIFA’s demands and Brazilian politicians’ response were not illegal. But the pressures put on Brazilian lawmakers were an example of how business corruption is socially corrupting: FIFA’s demands reduced the ability of the Brazilian government to protect its citizens and impaired the social performance of the country’s institutions.

This is why corporate social responsibility and sustainability are vital perspectives for executives and global businesses. They force managers to consider the larger, systemic implications of how they pursue parochial, short-term goals. That does not guarantee they will act in the interests of the larger systems, but it does at least give them the mindset to do so.


This article draws from “To Red-Card Corruption, You Have to Know What a Foul Is,” by Gregory Unruh. Copyright 2015 MIT Sloan Management Review. All rights reserved.