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Strengthening the Ties that Bind: Preventing Corruption in the Executive Suite

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Abstract

High-profile corporate scandals earlier in this decade provoked outrage and legislative action; however, corporate executive-level ethical lapses continue to come to light. This article examines the work of Professor Dunfee and his coauthors on corruption, ethical leadership, and social contracts theory, and relates that literature to corrupt activities by corporate executives. Corruption is defined broadly to encompass executive self-dealing, which harms their firms. The specific example of stock options backdating is used to show the harmful impact on shareholders and the lack of managerial integrity though consequentialist, deontological, and legal analysis, as well as a critique of the practice using social contracts principles. Ultimately, this article utilizes the insights of Dunfee and his coauthors, and the lessons from the backdating example, to propose a framework aimed at improving corporate governance and preventing future executive corruption. The framework includes a strategy of identification and prevention, employing detection and eradication mechanisms, and institutional learning from past instances of corporate corruption.

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Acknowledgments

Norman D. Bishara wishes to gratefully acknowledge the research assistance of Michael Schultz and the research support of the Stephen M. Ross School of Business at the University of Michigan. Cindy A. Schipani wishes to gratefully acknowledge the research assistance of Jules Martin Deporre and the research support of the Stephen M. Ross School of Business at the University of Michigan. The authors also wish to thank the Wharton Business School editorial team, including William Laufer, Lauretta Tomasco, and an anonymous reviewer for their helpful comments and suggestions.

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Authors and Affiliations

  1. Business Law and Ethics, Stephen M. Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, MI, 48109, U.S.A.

    Norman D. Bishara

  2. Business Law, Stephen M. Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, MI, 48109, U.S.A.

    Cindy A. Schipani

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  1. Norman D. Bishara
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  2. Cindy A. Schipani
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Correspondence to Norman D. Bishara.

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Bishara, N.D., Schipani, C.A. Strengthening the Ties that Bind: Preventing Corruption in the Executive Suite. J Bus Ethics 88 (Suppl 4), 765–780 (2009). https://doi.org/10.1007/s10551-009-0325-4

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