Corruption contagion: How legal and finance firms are at greater risk of corruption

Companies with fewer levels of management such as legal, accountancy and investment banking firms could be up to five times more susceptible to corruption than similar sized organizations with a taller structure such as those in manufacturing, a new study has revealed.

Conversely the research also shows that widespread corruption spreads more quickly through a taller company than through an organization with fewer levels of management and is more likely to permeate throughout its ranks.

What the researchers say: The new research paper, published in next month’s Physica A: Statistical Mechanics and its Applications, also warns that a medium-sized organization with less than 5% of employees committed to whistle-blowing would be powerless to prevent corruption spreading through their company. The authors say a company with a critical threshold of 25% of employees trained in whistleblowing is needed to prevent widespread corruption taking hold.

The lead author said: “We modelled the spread of corrupt practices infiltrating an organization like a social contagion.

“Once corruption pervades an organization to the extent that it becomes an organization-wide phenomenon, it will almost certainly decay and die, resulting in enormous social and economic costs. For corrupt practices to diffuse widely within an organization, the organizational culture would necessarily be complicit.”

The report’s authors recommend companies screen for high-integrity individuals during the recruitment process, using specific integrity or honesty tests and general personality instruments, for almost all roles above the lowest levels.

Other recommendations include advising companies to train up a small proportion of their workforce in whistleblowing principles and prioritizing integrity as the key characteristic of high-level appointments because the higher up the structure a corrupt bad apple is employed, the greater the likelihood, speed, and pervasiveness of corruption through its ranks.

The authors believe that companies, particularly those in professional services, may be reluctant to follow-up on their recommendations as they might interfere with other business priorities such as maximizing profit.

“In order for corruption to spread in an organization the presence of bad apples is necessary but not sufficient. It is also requires the rest of the organization to be susceptible to influence,” said the researchers. “Corruption is more likely in a flat organization with few or no levels between management and staff level employees which supervises its’ employees less and promotes their increased involvement in the decision-making process."

So, what? This is an interesting study and follows on from earlier studies which have shown that:

• Corruption is increasing in all industries—law and accountancy firms are not uniquely nasty
• Corruption increases when people are stressed
• Corruption increases when corruption is seen as OK by leaders—at any level
• Corruption is linked to context—for example environmental pollution, lack of outside views at work, fluorescent lights, working in a high-rise building.