Management 104 report

MANAGEMENT 104

CHAPER 6
Corporation Governance and
Anti – Corruption in Global Business
Presented By:
Mae Casumpang
Aizell Bernal
Magiel Amor
Mara Marielle Banez
Jerelyn Barrogo
Jeselyn Barrogo
Jasmin Khaye Aquino

Coverage of Chapter 5

I. 6.5 Corporate Governance and Anti- Corruption – mae
II. 6.2 Corruption Practices and Properties- Aizel
III. 6.3 Taxonomy of Corruption in International Business. – Magiel
IV. 6.4 Corruption and Organizational Environment – Khaye
V. 6.4.1 Task Environment - khaye
VI. 6.4.2 Institutional Environment – khaye
VII. 6.5 Corruption and Organizational Behavior- jerz
VIII. 6.5.1 System Malfeasance – jerz
IX. 6.52 Procedural Malfeasance –jerz
X. 6.5.3 Categoral Malfeasance- jerz
XI. 6.5.4 Structural malfeasance- jerz
XII. 6.6 Corruption and Organizational Consequences- Mara
XIII. 6.6.1 Evolutionary hazard – mara
XIV. 6.6.2 Strategic impediment – mana
XV. 6.6.3 Competitive disadvantage – mara
XVI. 6.6.4 Organizational Defficiiency- mara

Coverage of Chapter 5
I. 6.5.4 Structural malfeasance- jerz
II. 6.6 Corruption and Organizational Consequences- Mara
III. 6.6.1 Evolutionary hazard – mara
IV. 6.6.2 Strategic impediment – mana
V. 6.6.3 Competitive disadvantage – mara
VI. 6.6.4 Organizational Defficiiency- mara
VII. 6.7 Corruption and Organizational Architecture – jes
VIII. 6.7.1 Corporate Culture
IX. 6.7.2 Organizational Structure
X. 6.7.3 Compliance System
XI. 6.7.3.1 Conduct Code
XII. 6.7.3.2 Compliance Program

6.1 The Corporate Governance and Anti- Corruption
Corruption

• has drawn the enormous attention of executives, directors, legislators,
politicians, and scholars around the world.
• Recent obstacles of many well known companies.

Anti- corruption

• Crucial to corporate governance, because bribery and corruption
damage the Governance of corporation .

• Impede efforts to develop corporate integrity.

• any illicit behavior, conducted by executives, managers, and employees
can fundamentally deter the legitimate and long term interest of internal
and external stake holders.


In the international business context, anti- corruption
becomes even more important
To global corporate governance because MNCs confront
significantly varying norms, laws, and standards pertaining to
business practices in general and corruption practices in
particular.

 To cope increasingly stringent anti- corruption law and to
enhance the effectiveness and transparency of global corporate
governance, MNCs are voluntarily disclosing potential violations
of federal anti – corruption law.

 Surely it is true that the Anti – corruption necessities efforts
and commitments
from various institution, especially legislators, regulators and
government official.

Transparency – the key in private and public domain to fight
against bribery and
extortion.

 Cooperation to strengthen public support to fight against
Anti-corruption measures.

 Adoption of proper Corporate Governance practices is
complimentary element in Fostering a culture of ethics within
the multinational enterprise.

Business organization has an inescapable liability from such
effort and commitments :

I. Organization is a basic unit of corruption practice.
II. Organization that are motivated to bribe for transaction-
specific gain are partly responsible why corruption is
difficult to eradicate.
III. Organization is a window through which to see Nation
corruption climate.
IV. Knowing organizational implication of corruption is
imperative.


 Anti- corruption is critical to corporate
accountability.

 The foreign Corrupt practices Act ( FCPA) – clearly
states the importance of Anti- corruption in
fortifying MNCs global corporate governance and
accountability.

6.2 Corruption Practices and Properties
Corruption is a complex and multifaceted phenomenon with
multiple causes and effects, occurring as it takes on various forms
and functions in differing context.

Corruption define as an illegitimate exchange of resources
involving the use or abuse of public or collective responsibility for
private ends ( gains, benefits, profits, or privileges).

In narrow sense corruption involves a bureaucratic behavior that
deviates from the norm or violates rules specified by the given
context and is motivated by private gains that can be accrued
from the public role.

Kinds of Corruption
 bribery, fraud, extortion, favoritism

Bribery include:
1. Kickbacks
2. Red envelopes
3. gratuities
4. Baksheesh
5. grease money
6. Facilitation payment
7. Expediting fees

Fraud Includes:
• Trickery
• swindle
• Deceit
Extortion involve corrupt transactions where money or other
resources are violently extracted by those who have the
power to do so.


Nature of Corruption:

1. Corruption is context- based.
2. Corruption is norm- deviated.
3. Corruption is Power- related.
4. Corruption is virtually convert.
5. Corruption is International.
6. Corruption is ex post opportunistic.
7. corruption is perceptual

6.3 Taxonomy of Corruption in International Business
MNCs engaging in corrupt activities differ in the intensity scale and hierarchal
Scale of corruption, resulting in varying organizational identities, which
display
Different levels of seriousness regarding the corruption involved.

 The Intensity Scale of corruption – levels of seriousness concern with the
multitude
(quantity) as well as the magnitude (gravity) of the corrupt activities.

 Hierarchal scale – concerns the number of hierarchal levels ( e.g. ..
Group/team
level, function/department level, division/subsidiary level, and
corporate/head office level).

 These two dimension jointly mirror the seriousness of organizational
corruption.


Sick Bulldog Mad Fox
Structural Malfeasance System Malfeasance
*Leveling *Positioning
**Participation **Control

Errant Rabbit Wild Puppy
*Bridging *Interpretation
** Acquiescence ** Selection

1. Mad Fox- High intensity and more hierarchies
2. Errant Rabbit – Low intensities and few
Hierarchies
3. Sick Bulldog- low intensity and more hierarchies
4. wild puppy- high intensity and few hierarchies

Dimension

1. Mad Fox- is a metaphor for MNCs where a large number
of managers and employees at many hierarchical levels or
various subunits perform corrupt practices resulting in
very serious illegality.

2. Errant Rabbit – metaphor for an MNC in which intensity
and hierarchical scales of corruption are both very low,
implying fewer instances of misconduct, narrower
hierarchical involvement, and weaker plague from
corruption metaphors.


3. Sick Bulldog – Metaphor for MNCs whose Corrupt
activities are not intensive but are nonetheless the
practice of executive, managers, or employees at
many different levels.

4. Wild puppy – is a metaphor for an MNC in which
most corruption is narrowly concentrated at one or a
few levels of the hierarchy. This characterized by
large scale corrupt practices that are primarily
performed by the employees for one or narrowed
level of MNC.

6.4 Corruption and Organizational Environment

Organizational corruption is attributable to both corporate and environmental
Factors in individual countries wherein an MNC conducts businesses. The impact
of country dynamics – whether economic, political, legal, or cultural- on national –
Level corruption has been rigorously studied.

Task environment pertain to the external resources, information or condition
that may immediately affect goal setting and goal attainment.

Three Traits of Task Environment:

1. Oligopolistic intensity
2. regulatory control
3. institutional complexity

6.4.1 Task Environment
Oligopolistic Intensity describes the extent to which a small group of firms
in the Focal industry have dominant control and market power in the
industry. If a corrupt MNC subsidiary is a member of this group, it will be
motivated to continually bribe officials in power or collude with other
members of this group.

Regulatory control is concerned with the extent to which government
authorities Regulate and intervene in various industrial policies such as
market access, capital Investment, technological standard, distribution
channels, and environment protection which significantly impact business
operation in a focal industry.

Structural uncertainty describes the extent to which an industries
structural attributes such as demand and supply are violate and un
predictable.

6.4.2 Institutional Environments

Institutional environments serve conditioning factors that either
undercut
Or entice organizational corruption. This study proposes that
institutional
Transparency, institutional fairness, and institutional complexity
are important
components of these environments.

Institutional requirements affect organizational arrangements
through both
Cognitive and normative mechanism.


The institutional may exert relatively stronger effect in the
incidence of their Corrupt activities than the task environment
mentioned above.

Institutional transparency describes the extent to which
regulatory systems ( political, bureaucratic, industrial, and
professional) are open, clear, and easy to understand in a
particular country in which MNC unit invest and operates.


Institutional fairness describe the extent to which
various regulatory treatment are impartial, just and non
discriminatory to every business including foreign
business within the institutional reach.


Institutional complexity describes the extent to which
the institutional environment that an MNC or its units
must relate to complicated and difficult to
verify, analyze, comply, and cope with.
Institutional requirement affect organizational
arrangement through cognitive and normative
mechanism.

Institutional transparency describe the extent to which
regulatory system are open, clear, and easy to
understand in a particular country in which an MNC unit
invest and operate.


Institutional fairness describes the extent to which various
regulatory treatments are impartial , just and nondiscriminatory
to every business, including foreign business, with in
institutional reach.

6.5 Corruption and Organizational Behavior
This emphasizes an MNCs Malfeasant behavior in its
corrupt practices , attempts to use typology to
elucidate which deviant behaviors will be used by
organization with differing metaphors to align with
the above task and institutional environments

Mad Fox Metaphor is accompanied with system
malfeasance, a n errant Rabbit with Procedural
Malfeasance, a wild puppy with categorical
malfeasance, a sick bulldog with structural
malfeasance.

6.5.1 System Malfeasance
It exist when entire organizational system is contaminated
with corrupt acts
And corporate illegalities.

The mad fox metaphor applies well here because it involves
system wise fraud characterized by a great magnitude of
corrupt activities carried out by many hierarchies.

Corresponding to system malfeasance, a mad fox metaphor
emphasized positioning to align with uncertainty, regulatory
control, and oligopolistic intensity and focus to align on
control with institutional opaqueness, injustice, and
complexity.

6.5.2 procedural Malfeasance
Procedural malfeasance exist in the errant rabbit
metaphor whose formalized procedures on business
ethics are not strictly by some employees at one or
few level or in one few subunits, resulting in a low scale
and a narrow scope of illicit acts.

Bridging to figure with task environment and use
acquiescence to figure with institutional environments.

6.5.3 Categorical Malfeasance

Categorical Malfeasance exist in a wild puppy metaphor in
which many corrupt practices are concentrated in one or few
categorical levels, categorical units, or categorical location .

Categorical malfeasance is further revealed in the way a
wild puppy metaphor deals with its and institutional
environments.

Interpretation to deal with it task environments
and use selection to deal with Institutional environments.

6.5.4 Structural Malfeasance
Structural malfeasance exist in sick bulldog metaphor
where corruptions acts are structural in nature and most
levels of the hierarchy, if not all, are involved, despite the
fact that the latter are small scale in terms of quantity
and gravity.

A sick bulldog may focus on leveling to align with task
environment and on pacification to align with
institutional environments.

Leveling is a tactic that seeks to smooth the impact of the
task environment fluctuations on business operations.

6.6 Corruption and Organizational Consequences
Because corruption must be hidden from public, transaction
cost arising from corruption can be significantly higher than
those incurred for legal exchanges.

A short –term economic perspective , one may argue that
corruption can help reduce cost of a specific transaction from
increased institutional privileges and reduce regulatory
barriers.

One can always find exceptional or historical cases to
counter- argue the above the above premise. That is some
firms may achieve some short run as well as long run net
financial gains.

6.6.1 Evolutionary Hazard
As an evolutionary hazard in the long term, corruption obstruct firm growth
And business development through four interrelated channels namely:
Risk
Effect
Punishment effect
image effect
Cost effect

• The degree of risk is a function of the bureaucratic corruptors willingness,
Power, position, experience and network.

• Second, when a criminal fraud of corruption for an organizational purpose
Is found, both the individual and the MNC will be punished legally,
institutionally
And disciplinary.

6.6 Corruption and Organizational Consequences

Third, the image effect mainly lies in the stereotypical loss that
either increases Cost or reduces the income
stream for the company.

Lastly, all transaction entailing some element of
corruption inevitably involve financial cost.

6.6.2 Strategic Impediment

Corruption s a strategic impediment is mainly manifested
in resource
Misallocation, capability-building deterrence, and lack of
confidence and predictability.

In a competitive environment, firm growth depends on
its dynamic capabilities such as organizational
learning, knowledge upgrading, continuous
innovation, and I innovative corporate control.

Lack of predictability and confidence always accompanies
corrupt deals, which in turn impede business
development.

6.6.3 Competitive Disadvantage
Corruption is a competitive disadvantage is reflected by
dishonesty and untrustworthiness which can hurt a firms
competitive position in the market.

The elicit nature of corruption mirrors organizational
untrustworthiness. Adherence to the law is a prerequisite
element for corporate reputation and trustworthiness.

The hazard of untrustworthiness arising from corrupt acts
goes further. Trustworthiness is particularly important in
facilitating implicit long lasting Contractual ties to
employees, suppliers, and costumers.

6.6.4 Organizational Deficiency
Corruption is often the product of mismanagement. It violates
business ethics and length business principles. Since top
managers are more or less involved with Corrupt
activities, corruption implies problematic organizational
leadership and ill business morality.

March and Simon (1958) –states that most members within
MNC are motivated indirectly by organizational objectives and
directly by the incentive structure.

6.6.4 Organizational Deficiency
Four Fold organizational consequences of Corruption:

1. Evolutionary hazards, including risk effect, image effect,
punishment effect, and cost effect;

2. Strategic impediments, including resource misallocation,
capability- building deterrence, and lack of predictability and
confidence.

3. competitive disadvantage, including dishonesty,
untrustworthiness, and inefficiency is repeated ties;

4. Organizational deficiency, including problematic leadership, ill
business morality, and mismanagement.

6.7 Corruption and Organizational Architecture

Corruption id durable and adaptable virus. Combating corruption
requires a set of measures at various levels including addressing
poverty and inequity enacting and enforcing anti-corruption law,
and reforming dysfunctional Government .

Institutional theorist hold that pressures for legitimacy may
reside in explicit Demands of task and institutional
environments or in fact that certain forms of organizational
commitment and action taken for granted.

6.7.1 Corporate control

Corporate Culture set the moral tone for an MNC.

Corporate Culture is defined as
statement, vision, custom, slogans, values, Role
models, and social rituals that are unique to and used
by a focal MNC
to resist corrupt practices.

6.7.2 Organizational Structure
Misconduct can be detected and corrected through organizational
structure since this structure establishes the content of the jobs,
specifies monitoring Process, and regulates ways to fulfill and
responsibilities.

Transparency throughout the entire organizational structure
is a necessary Condition for reducing the potential for illicit
dealings.

Record keeping and reporting are procedures that the MNC
can use to document key aspects of its compliance effort and
to monitor its program For effectiveness.
Structural mechanism that enforce Anti- corruption
programs and policies
Must be in play.

6.7.3 Compliance System

The compliance system that suppresses corruption
consist of conduct codes and Ethics program,
together constituting an effective organizational
control that minimizes corporate illegalities.

6.7.3.2 Compliance Program
Compliance Program – training, due diligence, and formalized
procedures Ostensibly bring the behavior of MNC members into
conformity with a shared Ethical standard.

They constitute an organizational control system that encourages
shared ethical Aspiration and compliance with rules.

More specific legal and ethical training may be necessary for
employees in high-Risk and high corruptive areas.

Undertaking due diligence is vital for ensuring that anti
corruption processes are
Efficient and effective.

6.7.3.1 Conduct Code

This system begins with written commitment in areas of
business ethics that are relevant to the firms activities –
that is code of corporate conduct that provides a set of
legal and ethical guidelines for employees to follow.

The MNC may adopt prompt – impacting approaches and take
specialized
Stopgap measures to quickly correct wrong doing . These
measures include:

1. Special training and educational seminars on resisting
corruption for all employees in the area.
2. More specific legal and ethical training for senior managers
in high risk area
Or functions such as sales, promotion, procurement, public
relation, and international business.
3. Change or rotation of senior manager in the area if these
manager were involved in major illegalities.


4. Enhancement of internal auditing, recording, and control
over various activities conducted by the focal unit that are
especially prone to corruption.

5. Enhancement of internal auditing, recording, and control
over various activities conducted by the focal unit that are
especially prone to corruption.

6. Stringent disciplinary punishment for failure by anyone in
the area to meet ethical expectations.

7. Requiring chief managers or directors in the area to bear or
share responsibility for anti- corruption activities and tying
their performance appraisal

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