MANAGEMENT 104 CHAPER 6 Corporation Governance and Anti – Corruption in Global BusinessPresented By: Mae Casumpang Aizell Bernal Magiel Amor Mara Marielle BanezJerelyn BarrogoJeselyn BarrogoJasmin Khaye Aquino
Coverage of Chapter 5I. 6.5 Corporate Governance and Anti- Corruption – maeII. 6.2 Corruption Practices and Properties- AizelIII. 6.3 Taxonomy of Corruption in International Business. – MagielIV. 6.4 Corruption and Organizational Environment – KhayeV. 6.4.1 Task Environment - khayeVI. 6.4.2 Institutional Environment – khayeVII. 6.5 Corruption and Organizational Behavior- jerzVIII. 6.5.1 System Malfeasance – jerzIX. 6.52 Procedural Malfeasance –jerzX. 6.5.3 Categoral Malfeasance- jerzXI. 6.5.4 Structural malfeasance- jerzXII. 6.6 Corruption and Organizational Consequences- MaraXIII. 6.6.1 Evolutionary hazard – maraXIV. 6.6.2 Strategic impediment – manaXV. 6.6.3 Competitive disadvantage – maraXVI. 6.6.4 Organizational Defficiiency- mara
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.
6.1 The Corporate Governance and Anti- CorruptionIn the international business context, anti- corruptionbecomes even more importantTo global corporate governance because MNCs confrontsignificantly varying norms, laws, and standards pertaining tobusiness practices in general and corruption practices inparticular. To cope increasingly stringent anti- corruption law and toenhance the effectiveness and transparency of global corporategovernance, MNCs are voluntarily disclosing potential violationsof federal anti – corruption law.
6.1 The Corporate Governance and Anti- Corruption Surely it is true that the Anti – corruption necessities effortsand commitmentsfrom various institution, especially legislators, regulators andgovernment official.Transparency – the key in private and public domain to fightagainst bribery andextortion. Cooperation to strengthen public support to fight againstAnti-corruption measures. Adoption of proper Corporate Governance practices iscomplimentary element in Fostering a culture of ethics withinthe multinational enterprise.
6.1 The Corporate Governance and Anti- CorruptionBusiness organization has an inescapable liability from sucheffort 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.
6.1 The Corporate Governance and Anti- Corruption 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 PropertiesCorruption is a complex and multifaceted phenomenon withmultiple causes and effects, occurring as it takes on various formsand functions in differing context.Corruption define as an illegitimate exchange of resourcesinvolving the use or abuse of public or collective responsibility forprivate ends ( gains, benefits, profits, or privileges).In narrow sense corruption involves a bureaucratic behavior thatdeviates from the norm or violates rules specified by the givencontext and is motivated by private gains that can be accruedfrom the public role.Kinds of Corruption bribery, fraud, extortion, favoritism
6.2 Corruption Practices and PropertiesBribery include:1. Kickbacks2. Red envelopes3. gratuities4. Baksheesh5. grease money6. Facilitation payment7. Expediting fees Fraud Includes:• Trickery• swindle• DeceitExtortion involve corrupt transactions where money or other resources are violently extracted by those who have the power to do so.
6.2 Corruption Practices and PropertiesNature 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 BusinessMNCs engaging in corrupt activities differ in the intensity scale and hierarchalScale of corruption, resulting in varying organizational identities, whichdisplayDifferent levels of seriousness regarding the corruption involved. The Intensity Scale of corruption – levels of seriousness concern with themultitude(quantity) as well as the magnitude (gravity) of the corrupt activities. Hierarchal scale – concerns the number of hierarchal levels ( e.g. ..Group/teamlevel, function/department level, division/subsidiary level, andcorporate/head office level). These two dimension jointly mirror the seriousness of organizationalcorruption.
6.3 Taxonomy of Corruption in International Business 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
6.3 Taxonomy of Corruption in International BusinessDimension1. 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.
6.3 Taxonomy of Corruption in International Business 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 EnvironmentOrganizational corruption is attributable to both corporate and environmentalFactors in individual countries wherein an MNC conducts businesses. The impactof 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 conditionthat may immediately affect goal setting and goal attainment.Three Traits of Task Environment:1. Oligopolistic intensity2. regulatory control3. institutional complexity
6.4.1 Task EnvironmentOligopolistic Intensity describes the extent to which a small group of firmsin the Focal industry have dominant control and market power in theindustry. If a corrupt MNC subsidiary is a member of this group, it will bemotivated to continually bribe officials in power or collude with othermembers of this group.Regulatory control is concerned with the extent to which governmentauthorities Regulate and intervene in various industrial policies such asmarket access, capital Investment, technological standard, distributionchannels, and environment protection which significantly impact businessoperation in a focal industry.Structural uncertainty describes the extent to which an industriesstructural attributes such as demand and supply are violate and unpredictable.
6.4.2 Institutional EnvironmentsInstitutional environments serve conditioning factors that eitherundercutOr entice organizational corruption. This study proposes thatinstitutionalTransparency, institutional fairness, and institutional complexityare importantcomponents of these environments.Institutional requirements affect organizational arrangementsthrough bothCognitive and normative mechanism.
6.4.2 Institutional EnvironmentsThe institutional may exert relatively stronger effect in theincidence of their Corrupt activities than the task environmentmentioned above.Institutional transparency describes the extent to whichregulatory systems ( political, bureaucratic, industrial, andprofessional) are open, clear, and easy to understand in aparticular country in which MNC unit invest and operates.
6.4.2 Institutional EnvironmentsInstitutional fairness describe the extent to whichvarious regulatory treatment are impartial, just and nondiscriminatory to every business including foreignbusiness within the institutional reach.
6.4.2 Institutional EnvironmentsInstitutional complexity describes the extent to whichthe institutional environment that an MNC or its unitsmust relate to complicated and difficult toverify, analyze, comply, and cope with.Institutional requirement affect organizationalarrangement through cognitive and normativemechanism.Institutional transparency describe the extent to whichregulatory system are open, clear, and easy tounderstand in a particular country in which an MNC unitinvest and operate.
6.4.2 Institutional EnvironmentsInstitutional fairness describes the extent to which variousregulatory treatments are impartial , just and nondiscriminatory to every business, including foreign business, with ininstitutional reach.
6.5 Corruption and Organizational BehaviorThis emphasizes an MNCs Malfeasant behavior in itscorrupt practices , attempts to use typology toelucidate which deviant behaviors will be used byorganization with differing metaphors to align withthe above task and institutional environmentsMad Fox Metaphor is accompanied with systemmalfeasance, a n errant Rabbit with ProceduralMalfeasance, a wild puppy with categoricalmalfeasance, a sick bulldog with structuralmalfeasance.
6.5.1 System MalfeasanceIt exist when entire organizational system is contaminatedwith corrupt acts And corporate illegalities.The mad fox metaphor applies well here because it involvessystem wise fraud characterized by a great magnitude ofcorrupt activities carried out by many hierarchies.Corresponding to system malfeasance, a mad fox metaphoremphasized positioning to align with uncertainty, regulatorycontrol, and oligopolistic intensity and focus to align oncontrol with institutional opaqueness, injustice, andcomplexity.
6.5.2 procedural MalfeasanceProcedural malfeasance exist in the errant rabbitmetaphor whose formalized procedures on businessethics are not strictly by some employees at one orfew level or in one few subunits, resulting in a low scaleand a narrow scope of illicit acts.Bridging to figure with task environment and useacquiescence to figure with institutional environments.
6.5.3 Categorical MalfeasanceCategorical Malfeasance exist in a wild puppy metaphor in which many corrupt practices are concentrated in one or fewcategorical levels, categorical units, or categorical location .Categorical malfeasance is further revealed in the way awild puppy metaphor deals with its and institutionalenvironments.Interpretation to deal with it task environments and use selection to deal with Institutional environments.
6.5.4 Structural MalfeasanceStructural malfeasance exist in sick bulldog metaphorwhere corruptions acts are structural in nature and mostlevels of the hierarchy, if not all, are involved, despite thefact that the latter are small scale in terms of quantityand gravity.A sick bulldog may focus on leveling to align with taskenvironment and on pacification to align withinstitutional environments.Leveling is a tactic that seeks to smooth the impact of thetask environment fluctuations on business operations.
6.6 Corruption and Organizational ConsequencesBecause corruption must be hidden from public, transactioncost arising from corruption can be significantly higher thanthose incurred for legal exchanges.A short –term economic perspective , one may argue thatcorruption can help reduce cost of a specific transaction fromincreased institutional privileges and reduce regulatorybarriers.One can always find exceptional or historical cases tocounter- argue the above the above premise. That is somefirms may achieve some short run as well as long run netfinancial gains.
6.6.1 Evolutionary HazardAs an evolutionary hazard in the long term, corruption obstruct firm growthAnd business development through four interrelated channels namely:RiskEffectPunishment effectimage effectCost 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 purposeIs found, both the individual and the MNC will be punished legally,institutionallyAnd disciplinary.
6.6 Corruption and Organizational ConsequencesThird, the image effect mainly lies in the stereotypical loss thateither increases Cost or reduces the incomestream for the company.Lastly, all transaction entailing some element of corruption inevitably involve financial cost.
6.6.2 Strategic ImpedimentCorruption s a strategic impediment is mainly manifestedin resourceMisallocation, capability-building deterrence, and lack ofconfidence and predictability.In a competitive environment, firm growth depends onits dynamic capabilities such as organizationallearning, knowledge upgrading, continuousinnovation, and I innovative corporate control.Lack of predictability and confidence always accompaniescorrupt deals, which in turn impede businessdevelopment.
6.6.3 Competitive DisadvantageCorruption is a competitive disadvantage is reflected bydishonesty and untrustworthiness which can hurt a firmscompetitive position in the market.The elicit nature of corruption mirrors organizationaluntrustworthiness. Adherence to the law is a prerequisiteelement for corporate reputation and trustworthiness.The hazard of untrustworthiness arising from corrupt actsgoes further. Trustworthiness is particularly important infacilitating implicit long lasting Contractual ties toemployees, suppliers, and costumers.
6.6.4 Organizational DeficiencyCorruption is often the product of mismanagement. It violatesbusiness ethics and length business principles. Since topmanagers are more or less involved with Corruptactivities, corruption implies problematic organizationalleadership and ill business morality.March and Simon (1958) –states that most members withinMNC are motivated indirectly by organizational objectives anddirectly by the incentive structure.
6.6.4 Organizational DeficiencyFour 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 ArchitectureCorruption id durable and adaptable virus. Combating corruptionrequires a set of measures at various levels including addressingpoverty and inequity enacting and enforcing anti-corruption law,and reforming dysfunctional Government .Institutional theorist hold that pressures for legitimacy mayreside in explicit Demands of task and institutionalenvironments or in fact that certain forms of organizationalcommitment and action taken for granted.
6.7.1 Corporate controlCorporate Culture set the moral tone for an MNC. Corporate Culture is defined asstatement, vision, custom, slogans, values, Rolemodels, and social rituals that are unique to and usedby a focal MNCto resist corrupt practices.
6.7.2 Organizational StructureMisconduct 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 andresponsibilities.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 MNCcan use to document key aspects of its compliance effort and to monitor its program For effectiveness.Structural mechanism that enforce Anti- corruption programs and policiesMust be in play.
6.7.3 Compliance SystemThe compliance system that suppresses corruptionconsist of conduct codes and Ethics program,together constituting an effective organizationalcontrol that minimizes corporate illegalities.
18.104.22.168 Compliance ProgramCompliance Program – training, due diligence, and formalizedprocedures Ostensibly bring the behavior of MNC members intoconformity with a shared Ethical standard.They constitute an organizational control system that encouragesshared ethical Aspiration and compliance with rules.More specific legal and ethical training may be necessary foremployees in high-Risk and high corruptive areas.Undertaking due diligence is vital for ensuring that anticorruption processes areEfficient and effective.
22.214.171.124 Conduct CodeThis system begins with written commitment in areas ofbusiness ethics that are relevant to the firms activities –that is code of corporate conduct that provides a set oflegal and ethical guidelines for employees to follow.
126.96.36.199 Compliance ProgramThe MNC may adopt prompt – impacting approaches and takespecializedStopgap measures to quickly correct wrong doing . Thesemeasures 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 areaOr 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.
188.8.131.52 Compliance Program4. 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