DEVELOPING A CORRUPTION-VULNERABILITY INDEX FOR ORGANIZATIONS: A STUDY OF INDIAN STATE-OWNED ENTERPRISES.

Author:Janardhanan, Vinayan
 
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INTRODUCTION

Corruption in the organizational context, or Organizational Corruption, has negative consequences for all stakeholder groups (Lange, 2008), (Luo, 2002). Organizational corruption can be understood as the furthering of individual interests by one or more organizational actors through the intentional misdirection of organizational resources or perversion of organizational routines, this behavior being ostensibly on behalf of the corporation rather than against it (Lange, 2008). Organizational corruption, unlike the other misconducts like organizational misbehavior or counter-productive workplace behavior, is a strong and provocative term implying a willful perversion of order, ideals and trust. Corruption has become a grave matter of concern afflicting for-profit, not-for-profit, governmental, and even religious organizations (Ashforth, Gioia, Robinson, & Trevino, 2008).

Apart from being highly detrimental to organizational interests, corruption is particularly damaging to society when it becomes rampant in public sector organizations (PSO/PSUs) or state owned enterprises (SOEs). This is because, owned and operated by the government of the country, SOEs manage public money and national assets; and corrupt activities in these organizations lead to leakage of public funds, inefficiency in operations, erosion of organizational and national prestige and loss of public trust in the government. The need to eradicate corruption and improve the ethical standards of elected officials and public servants has become a major issue on the public agenda throughout the western world and in developing nations (Beeri, Dayan, Vigoda-Gadot, & Werner, 2013). For preventing corruption, the first step is to detect and measure it. Yet corruption is often difficult to identify and measure. Corruption vulnerabilities often arise from informal practices, insufficient incentives for enforcement and adherence to standards, and managerial blind spots (Fritzen, 2007). In 2013, the listed Indian PSUs taken together alone accounted for nearly 19% of total market capitalization in Indian stock market; i.e., Rs.1.25 trillion (Rs.61 = US$ 1 in Oct 2013) (MoneyControl.com, 2013). By August 2018, with India emerging as the fifth largest and the fastest growing economy in the world, these numbers changed to Rs 1.71 trillion (Rs 72 = US$ 1in August 2018) and 14.89% of the market capitalization. As of 31st March 2017, there were as many as 331 CPSEs (excluding insurance companies). The number of profit making CPSEs as of 2016-17 stands at 174 with a total profit of Rs. 1.52 trillion (Bombay Stock Exchange, 2018). The Indian SOEs include banks, railways, airlines, mines, manufacturing units, fuel companies and touch practically every sphere of economic and social activity in the country. Indian SOEs thus, provide a fertile and significant research setting for this study.

Ethical oversight and anticorruption practitioners seem constrained by the absence of an ex ante, predictive and preventive tool that could help to identify which organization or which part of the organization is likely to develop system failures through its misuse or abuse and become vulnerable to corruption. Existing practitioner-oriented indexes include the Corruption Perception Index (CPI) of Transparency International, Control of Corruption Index (CCI) (of World Bank), International Crime Victims Survey of Europe, and O-CLEAR (by PricewaterhouseCoopers). However, these indexes neither have an ex ante perspective nor are they conceptualized at the organization level. The existing indexes look at individual perceptions of corruption from an ex post point of view, and at country levels. Hence, there is a need for more relevant and robust organization-level diagnostic and preventive tools, from the oversight practitioners' perspective.

A review of theoretical literature from management and organization studies on the phenomenon of organizational corruption reveals that much of the extant literature is also developed along ex post perspectives; e.g. (Ewoh, Matei, & Matei, 2013); (Vaughn, 1999). The questions being asked tend to the likes of 'what went wrong'; 'what are the repercussions on the organizations and its stakeholders' and 'what are the lessons learnt'. Not many authors are seen to be enquiring into possibilities such as 'can we predict where and how such lapses could appear in future'; 'is it possible to assess the corruption-vulnerability or anti-corruption preparedness of the organization; or 'to measure, index and compare organizations on this count'.

In this work we look at the organizational antecedents as well as vulnerabilities to corruption. Thus, unlike most theory-based studies on corruption, we look at corruption from an ex ante, preventive point of view. Misangyi, Weaver and Elms (2008) argue that the deinstitutionalization of endemic corruption requires changes in both the symbolism and substance of corrupt institutional orders through development of non-corrupt habits and practices rooted in newly constructed frameworks of meaning; the suggestion of one such framework is the purpose of this analysis.

Placing our work in this research gap, we attempt to construct an index based on a conceptual framework developed from theory. We link this conceptual framework with secondary data on real life corruption cases from a national oversight body. Additional primary data are collected from a sample of senior ethical oversight and vigilance officials, to construct a Corruption Vulnerability Index. Finally, this Index is tested in a large number of SOEs to generate their Corruption Vulnerability Values which indicate the anti-corruption preparedness of the respective organizations. This work hopes to be a scholar-practitioner contribution to the cause of anti-corruption and ethical oversight to fulfill a growing, sorely felt need by practitioners and to address an observed gap in literature. We also suggest several streams of continuing research as well as suggestions for practitioners to delve further into the organization level perspectives of corruption, perhaps one of the greatest scourges faced by modern civilization.

THEORY

Corruption is a universal phenomenon studied, discussed and theorized for several years. Yet, even today, there is a pressing need for a single theory driven taxonomic scheme reflecting an overall conceptualization of corruption (Ashforth, Gioia, Robinson, & Trevino, 2008). Broadly, corruption has been looked at from individual, group, societal, organizational and philosophical perspectives, among others (Everett, Neu, & Rahaman, 2006). Some theories like the Clashing Moral Values approach (Graaf, 2007) include multi-pronged theories involving individual, organizational, institutional and societal factors. Misconduct in organizations can be approached from the two broad perspectives of moral philosophy and deviance with six different methods of defining various types of misconduct (Lefkowitz, 2009). These six areas include unethical behavior, incivility or rude behavior, organizational deviance, organizational misbehavior, counter-productive workplace behavior and organizational corruption. Corruption, while clearly belonging to this group of misconducts, is significantly different from, and in many ways, more detrimental to the organization than the rest. If we consider a circle of unethical behavior within a domain of organizational misconducts, corruption is seen to be fully within this circle, with incivility, misbehavior and counterproductive work behavior hovering on the periphery and organizational deviance rather outside the circle.

One of the most commonly used definitions of corruption is the use of public office for personal gain (Gray, 2001). Ashforth et al. (2008) have described that corruption implies a willful perversion of order, ideals and perhaps most important, trust. For the purpose of this study, we take the defining features of Corruption as (i) the violation of public/moral norms, (ii) the breach of trust or faith, (iii) the willfulness of the act and (iv) the harm caused to others or the organization itself (Ashforth et al. 2008). This study is focused on detecting linkages between the core ethics resources inherent in any organization's structure, culture, environment, processes and routines on the one hand, and the irregularities or violations of these organizational rules, processes and routines as revealed in corruption case investigations on the other. Once these relationships are established we hope to leverage the same for the construction of an organization-level corruption vulnerability index. Pinto, Leana, & Pil (2008) have described how firms could be labeled as corrupt organizations (CO) or organizations of corrupt individuals (OCI). When the number of corrupt individuals increase beyond a threshold value or when the top management itself starts showing these tendencies, OCI turns into CO. Senior leaders are often responsible for corrupt actions by setting unrealistic financial goals, condoning and modeling unethical behavior themselves (Ashforth & Anand, 2003), (Brown, Trevino, & Harrison, 2005); considering such behavior as routine, or simply turning a blind eye to the means underlings use to achieve these goals (Ashforth and Anand 2003), (Brief, Buttram, & Dukerich, 2001), (Clinard, 1990).Often, failure in the checks and balances within the organization can create a context for individuals to act corruptly. These weaknesses or loopholes provide the openings and the environment for unethical behavior to commence, and flourish.

ANTECEDENTS, PRECURSORS, MEDIATORS AND MODERATORS OF CORRUPTION

For analyzing corruption from the ex ante and preventive perspective, we need to study what happens in the organization before corrupt actions happen. Ashforth et al. (2008) have commented that since different scholars have focused on various aspects of corruption through their own disciplines'...

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