On the dark side of the code: organizational challenges to an effective anti-corruption strategy

Abstract

Corporations have been fighting for decades to eliminate corruption. However, despite the proliferation of compliance programs and a recurrent surge of interest in business ethics, commercial bribery prevails as a “rational choice strategy” for economic success and thus is widely regarded as the result of immoral choices of greedy individuals. This article reports on a modus operandi study concerning corruption within a large industrial corporation (Siemens AG). Results highlight the fact that neither consistent anti-corruption norms nor severe formal sanctions were able to deter certain employees from deviant behavior in this landmark case of structural corruption. Sociologists and business economists have both pointed to the organizational culture that provides an explanation for this paradox. The author compares three diverging hypotheses: (1) private gain, (2) cognitive normalization, and (3) organizational cultures, and concludes that the structural causes of corrupt practices fit the definition of ‘useful illegality’ (Luhmann). To a large extent, this old sociological concept resembles the criminological idea of corporate crime, but it emphasizes the cultural factors that undermine management’s preventive strategies, and thus holds the promise of theoretical progress. Implications that emerge from the case analysis for the social control of corporate bribe payers are discussed. The discussion reveals why challenges to successful anti-corruption efforts persist at the organizational level.

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Notes

  1. 1.

    Heinrich von Pierer joined Siemens in 1969. He served as ‘chief executive officer’ (CEO) since 1992 and as ‘chairman of the supervisory board’ in the last 2 years of his employment. He resigned in 2007, in the wake of the corruption scandal that is the subject of this article.

  2. 2.

    This article uses a narrow, formal understanding of corruption, describing the phenomenon as a specific type of interaction, defined by the granting or acceptance of unduly advantages and third party damage [cf. 3: p. 162].

  3. 3.

    A modest progress in the search for an explanation of corruption phenomena at the firm level has recently been driven by management studies and organization science [12, 13].

  4. 4.

    Organizations will tend to formalize all expectations which are crucial to their public image, in order to discipline the members’ behavior in situations in which they have to interact with non-members [31: p. 117].

  5. 5.

    Luhmann [35] defines organizational culture as the ‘undecidable premises of decision-making’, a concept that he introduced in a posthumously published work on organizational sociology. For a brief account of the basic concepts of this late opus, see Seidl & Becker [36]. For a succinct overview of its development, see Nassehi [37].

  6. 6.

    Whether the norm’s repudiation is actually reconcilable with a continuing membership in the formalized system is a question determined from the standpoint of the user that invokes the norm [31: p. 308]. On the one hand, this obviously implies nullo actore nullus iudex. On the other hand, this also means that if the formal organization does not discriminate petty deviations, then this distinction is of little avail to defend the deviant employee (outside the scope of labor law).

  7. 7.

    That is why my account of the criminal case also has to rely on this source. However, media reports (collected via systematic research in the database LexisNexis Wirtschaft and online archives of daily newspaper Süddeutsche Zeitung) on the case were validated with press releases of the court [4042] and court documentation to reconstruct the following course of events.

  8. 8.

    According to some media reports, bureaucracy even required at some point the preprinted indication ‘stick yellow note here’.

  9. 9.

    This and the following quotations are my own translation of excerpts from an interview published in a German daily newspaper [cf. 44; Süddeutsche Zeitung].

  10. 10.

    Thus, corporate criminality had long provided Wilhelm S. with the necessary opportunity structure for embezzlement.

  11. 11.

    The fact that the Siemens AG and three of its subsidiaries pled guilty to FCPA-related charges by U.S. authorities in 2008 corroborates this finding [48].

  12. 12.

    Compare this to the worst case scenario that Sidhu [50: p. 1352 (emphasis added)] envisions regarding anti-corruption compliance in the aftermath of the Siemens scandal: “Suitcases of cash may be replaced by requests for donations or other payments that sound innocent, but turn out to be corruption in disguise. The resourcefulness of employees willing to bribe for the acquisition of business should not be underestimated.”

  13. 13.

    This is not to say that an economic analysis of the law [see 11] is pointless, but that the principal–agent approach does not adequately capture complex organizational structures.

  14. 14.

    In 2009, Siemens threatened former board members with civil actions. They were supposed to compensate the corporation for damages that allegedly occurred due to violations of their respective employment duties. Nine out of eleven agreed to settlements, one of them former chairman Heinrich von Pierer, who eventually paid 5 million Euros [53].

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Acknowledgments

I am indebted to Markus Pohlmann, who supervised this research, for making me aware of the link between the Siemens case and useful illegality. Furthermore, this article has benefited greatly from comments on an earlier draft by Rafael Bauschke, Volker Helbig and Hristina Markova as well as – last but certainly not least – by an anonymous reviewer.

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Klinkhammer, J. On the dark side of the code: organizational challenges to an effective anti-corruption strategy. Crime Law Soc Change 60, 191–208 (2013). https://doi.org/10.1007/s10611-013-9453-y

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Keywords

  • Chief Executive Officer
  • Organizational Crime
  • Corporate Crime
  • Corrupt Practice
  • Corruption Case