There are multiple forms of corruption to keep an eye on.
Dawn Keig, associate professor of business at Whitworth University, examines formal and informal corruption and how they affect firms differently.
Dawn Keig teaches Strategic Management and is Chair of the Business and Economics department at Whitworth University in Spokane, Washington. Her research examines how multinational firm outcomes are shaped by the institutional characteristics of their operating location environments.
One positive trend that has come out of the growing accountability-in-business movement is a growing awareness on the part of businesses, particularly multinational enterprises, of the potential impact of corruption on their operations.
We “unpack” corruption in a business setting by examining how different kinds of corruption might influence a firm’s tendency to engage in socially irresponsible behavior, such as actions that are ecologically and/or socially harmful. Not all corruption is visible, and current research explores the possibility of “hidden” corruption influences not accounted for in the most commonly used measures. These hidden measures may provide a breeding ground for social irresponsibility in business.
Corruption has two different dimensions. There is formal corruption, which is typically what we think of as “corruption.” Formal corruption is driven from the positional power of elite actors and it tends to reflect bigger issues and larger-sum activity related to individuals operating from positions of power.
However, we also are finding an informal component to corruption, reflecting the less tangible, more elusive petty corruption found in the common, routine reality of everyday citizens. We found that both formal and informal corruption environments each independently contribute to a firm’s level of social irresponsibility.
Many people may assume that formal and informal corruption levels mirror each other in a given country, but we found there are many countries in which the two dimensions are not necessarily correlated. As a matter of fact, one third of the international firms we investigated are operating in locations with lower levels of formal corruption, but with high levels of informal corruption, what we found to be a dangerous combination for business.
This is important to business because a failure to consider both the formal and informal corruption profiles of their location choices may lead management to misinterpret the true corruption levels in their operating environment.