Why firms may be addicted to the corruption habit

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Why firms may be addicted to the corruption habit
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After major destruction, either man-made or natural, it isn’t unusual to see looters. Maybe that’s why David De Cremer surveyed the ruins ofour recent financial crisis and was not surprised to find even more corruption.

While most of us want to avert our eyes in the face of disaster, we need to face a nasty reality: irresponsiblebehaviour of self-serving business leaders are often culturally ingrained. Are there steps organizations can take to break corrupt habits? Yes. But first it’s important to understand the problem.Financial corruption such as fraud, bribes and misrepresenting crucial information two decades ago was seen as a somewhat rare event; nowadays, it is commonly accepted that it takes place in virtually everyorganisation. Indeed, the Corruption Perception Index 2009 (published by Transparency International) indicates that on average, two out of three companies report internal cases of corruption.Moreover, companies not only suffer from corruption but also engage in unethical activities themselves.

Contrary though it may seem, crisis itself appears to breed further corruption within companies.Indeed, evidence is mounting that the present financial crisis has actually promoted acts of corruption. The idea that corruption and fraud can be propelled by the current financial situation is aconclusion that many find puzzling.

Winning at any cost?

Both behavioural economics and social psychological researchers have shown that people have weak stomachs for loss. So much so, that fear ofloss is a greater motivator than is anticipation of gain. Self-preservation drives people to maintain the status quo. One way to do this is to take more risks. In other words, people are actually moremotivated to engage in risky behaviours to avoid loss rather than to achieve gain. In the context of a financial crisis, when looking at a situation in terms of losses, corruption is never far away....
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