Confronting Corporate Corruption. Business Ethics and Ethical Principles of the Catholic Social Teaching as Potential Keys to Reducing and/or Eradicating it

Abstract

TABLE OF CONTENTS -------------------------

ACKNOWLEDGEMENTS II TABLE OF CONTENTS III ABBREVIATIONS XV SELECTED BIBLIOGRAPHY XVII GENERAL INTRODUCTION LXIX

CHAPTER ONE -----------------

UNDERSTANDING CORRUPTION: A CONCEPTUAL AND TAXONOMIC ANALYSIS

Introduction 1 1. Corruption: A conceptual analysis 2 1.1. Corruption as an economic concept 2 1.2. Corruption as a socio-cultural concept 6 1.3. Corruption as a political concept 7 1.4. Corruption as a legal concept 8 1.5. Corruption as a public administration concept 9 1.6. Corruption as perceived by "wajasiriamali" (entrepreneurs) 11 1.7. Corruption as understood by the public 12 1.8. Corruption as an ethical concept 13 2. Essential characteristics of the phenomenon of corruption 15 3. Corporate corruption defined 16 4. A taxonomy of corruption 17 4.1. Bribery 17 4.1.1. Defining bribery 18 4.1.2. Differentiating bribery from gifts 18 4.1.3. Bribery and the myth of culture 21 4.1.4. Bribery as betrayal of trust, shared ideals and personal moral excellence 22 4.1.5. Ethical ambiguity of bribery 25 4.2. Economic extortion 26 4.2.1 Nature of economic extortion 26 4.2.2. Distinction between extortion and bribery 27 4.2.3. Extortion as a moral issue 29 4.3. Nepotism/favouritism 30 4.3.1. Definition 30 4.3.2. Moral costs of nepotism 30 4.4. Corporate fraud 31

Conclusion 33

CHAPTER TWO -----------------

CAUSES OF CORPORATE CORRUPTION

Introduction 35 1. Corruption: A general review on its genesis and spread 35 1.1. Beginning of man's social life: Necessity of power-holders 36 1.2. Rise of traditional institutions 39 1.2.1. Legal institutions: Judiciary and legislature 39 1.2.2. Democracy and political rights: Electoral-based corruption model 40 1.2.3. Growth of cash economy: A blessing in disguise? 44 1.3. Colonialism and economic imperialism 45 1.3.1. Colonialism 45 1.3.2. Economic imperialism: Legal doctrine of limited liability 50 1.4. Hierarchical religions and the rise of corruption 52 1.5. Modernity and positivist philosophy: Loss of theocentric view of reality 56 1.5.1. Meaning and moral implications of modernity 56 1.5.2. Positivism 59 2. Corporate corruption: Analysing the causes 61 2.1. Corporate corruption revolution: Reasons for the shift 62 2.1.1. Advent of business ethics 62 2.1.2. Media's burgeoning influence 63 2.1.3. Collapse of planned economies and the end of Cold War 65 2.1.4. World Bank and International Monetary Fund 66 2.1.5. Globalisation and non-governmental organizations 67 2.2. Analysing the causes of corporate corruption 67 2.2.1. Causes for the supply of corrupt services 68 2.2.1.1. Market and administrative structures: Principal-agent-client model 68 2.2.1.2. Overall level of economic development and quality of the bureaucracy 70 2.2.1.3. Tax policy and administration: Rents model 74 2.2.1.4. Low public-sectors salaries 75 2.2.1.5. Neo-patrimonial administrative systems: Dependency theory 77 2.2.1.6. Corruptibility of human personality 79 2.2.2. Causes of the demand for corrupt services 83 2.2.2.1. Intensity of competition and unfair competitive strategies 84 2.2.2.2. Political election financing 86 2.2.2.3. Tax deductibility of bribes 88 2.2.2.4. Corporate culture and its influence on ethical decision-making 89 2.2.2.5. Poor financial return and operating financial performance 93

Conclusion 94

CHAPTER THREE -------------------

POSITIVE AND NEGATIVE ASPECTS OF CORPORATE CORRUPTION: THEORETICAL DEBATE AND ETHICAL-PHILOSOPHICAL ASSESSMENT

Introduction 97 1. Positive aspects of corruption 98 1.1. Various theories on the positive aspects of corruption 99 1.1.1. Economic theory and its myopic selectivity 99 1.1.1.1. Corruption as catalyst for workforce morale and productivity 99 1.1.1.2. Corruption as a means for competition and entrepreneurship 102 1.1.1.3. Corruption fuels innovation and capital formation 104 1.1.2. Socio-political theory on the positive aspects of corruption 104 1.1.2.1. Social integration and political stability 105 1.1.3. Managerial theories 106 1.1.3.1. Corporate bribery as a hedge against job losses and bad policy 107 1.1.3.2. Circumvention of cumbersome rules 108 1.1.3.3. Wages and employee's theft 109 2. Negative aspects of corruption 110 2.1. Adverse economic effects of corruption 110 2.1.1. Corruption: Its effects on economic efficiency and fair competition 111 2.1.2. Corruption's effects on economic growth and foreign direct investment 115 2.1.3. Corruption's effects on trade policy and international trade 118 2.2. Social effects of corruption 120 2.2.1. Corruption's effects on equitable wealth distribution 120 2.2.2. Corruption's effects on bureaucratic integrity and corporate competence 122 2.2.3. Corruption and incentives 124 2.2.4. Corruption and social integration 125 2.2.5. Corruption and foreign debts 126 2.2.6. Corruption and corporate social responsibility 127 2.3. Political Effects of corruption 127 2.3.1. Corruption as anti- democratic 128 2.3.2. Corruption and political stability 129 3. A critical ethical-philosophical assessment of corruption 131 3.1. Ethical or moral dimension of corruption 131 3.2. Ethical-philosophical arguments for impermissibility of corruption in business 133 3.2.1. Critique of the moralist critique of corruption 133 3.2.2. Philosophical and ethical impermissibility of corruption in business 133 3.2.2.1. Teleological/utilitarian arguments 133 3.2.2.2. Political social contract arguments 136 3.2.2.3. Social contract for business arguments 139 3.2.2.4. Deontological arguments 143 3.2.2.6. Arguments based on virtue ethics 148 3.2.2.6.1. Meaning and scope of virtue ethical theory 148 3.2.2.6.2. Impact of corruption on personal integrity 150 3.2.2.7. Arguments based on the ethical principles of CST 152

4. Summary and conclusion: A scholarly consensus? 152

CHAPTER FOUR ------------------

NARRATING THE ANTICORRUPTION CAMPAIGNS: A CRITIQUE OF THE LEGAL APPROACH

Introduction 155 1. Governmental anticorruption efforts in the past 156 1.1. "Carrots" strategy 157 1.1.1. Ancient Babylonian and Egyptian societies 157 1.1.2. Ancient Hebrew, Greek and Roman societies 157 1.1.3. Ancient Indian and Chinese societies 159 1.2. "Sticks" strategy 159 1.2.1. Ancient Babylonian and Egyptian societies 160 1.2.2. Ancient Hebrew, Greek and Roman societies 161 1.2.3. Ancient Indian and Chinese societies 163 2. Modern anticorruption efforts 164 2.1. Anticorruption efforts with national and intergovernmental character 165 2.1.1. U.S. Foreign Corrupt Practices Act 1977 166 2.1.1.1. Historical context 166 2.1.1.2. Contents of FCPA 167 2.1.1.3. A critical look at the FCPA 169 2.1.2. OECD Convention on combating international bribery 171 2.1.2.1. Brief history of the OECD 171 2.1.2.2. OECD Convention 172 2.1.2.3. Summary review of the OECD Convention 174 2.1.2.4. Challenges to implementation 176 2.1.3. African Union Convention on Preventing and Combating Corruption 177 2.1.3.1. Drafting and adoption 177 2.1.3.2. Awareness of the problem of corruption in Africa 178 2.1.3.3. Objectives and principles 178 2.1.3.4. Active participation of civil society and media 179 2.1.3.5. Need for international cooperation 180 2.1.3.6. A Mutual evaluation process 181 2.1.3.7. Appraisal 182 2.2. Anticorruption initiatives with international and public character 182 2.2.1. Role of anticorruption organisations with international and public character 182 2.2.2. United Nations 183 2.2.2.1. Historical background 183 2.2.2.2. The UN Global Compact 184 2.2.2.3. The United Nations Convention against corruption 185 2.2.3. International Monetary Fund 186 2.2.3.1. Definition and purpose 186 2.2.3.2. Good governance approach 186 2.2.3.3. A critique... 188 2.2.4. World Bank and Corruption 188 2.2.4.1. Background 189 2.2.4.2. WB's legal mandate 189 2.2.4.3. WB's implicit concern with corruption 189 2.2.4.4. WB's explicit concern with corruption 190 2.2.4.5. WB's current anticorruption strategy 191 2.2.5. World Trade Organisation 193 2.2.5.1. Its origin 193 2.2.5.2. Role of the WTO 193 2.3. Anticorruption efforts with private character 194 2.3.1. International Chamber of Commerce 195 2.3.1.1. Definition and history 195 2.3.1.2. ICC key rules of conduct 196 2.3.1.3. Critical views on self-regulation 197 2.3.2. Transparency International 198 2.3.2.1. Meaning and purpose 198 2.3.2.2. Ant-icorruption strategy 198 2.3.3. Caux Roundtable's principles for business 199 2.3.3.1. Basis 199 2.3.3.2. Principles for ethical business 199 2.3.3.3. Basic themes of the CRT 200 2.3.4. Global Sullivan Principles (GSP) of Social Responsibility 201 2.3.4.1. Historical evolution 201 2.3.4.2. Vision and objectives of the GSP 201 2.3.5. Interfaith Centre for Global Corporate Responsibility 203 2.3.5.1. Context and purpose 203 2.3.5.2. Financial and ethical integrity 203 3. A critical perspective on the legal approach 203 3.1. Applicability problem 204 3.2. Lack of constant law enforcement 204

Conclusion 205

CHAPTER FIVE ------------------

BEYOND ANTICORRUPPTION LAW: UNVOIDABILITY OF THE SOCIO-MORAL RESPONSIBILITY OF CORPORATIONS

Introduction: Bribery case study 209 1. Corporation and the historical evolution of its structure 210 1.1. Corporation defined 210 1.2. Legal corporate personality: realism versus nominalism 211 1.3. A historical evolution of the corporate structure and power 212 1.3.1. Pre-modern corporations 212 1.3.2. Modern multinational corporations 214 1.3.3. Corporate power and its ramifications 216 2. Necessity for corporate social responsibility (CSR) 218 2.1. A brief historical account of CSR 218 2.2. Meaning of CSR as concept 220 2.2.1. CSR as a shareholder concept 220 2.2.2. CSR as a stakeholder concept 220 2.2.3. CSR as a sustainability concept 222 2.3. Debate as to the concrete content of CSR 222 2.3.1. Milton Friedman's defence of a single corporate purpose 223 2.3.2. Competing models of CSR 225 2.3.2.1. Neo-liberalist model 225 2.3.2.1.1. Neo-liberal free market and profit maximisation defenders 225 2.3.2.1.1.1. Theodore Levitt's suspicion of CSR 226 2.3.2.1.1.2. Albert Carr's defence of corporate amoralism 228 2.3.2.1.1.3. Milton Friedman: modernising the invisible hand and rejecting CSR 232 2.3.2.2. Managerial or stakeholder model 236 2.3.2.3. Contractarian model 238 2.4. Business and moral cases for CSR 240 2.4.1. Business case for CSR 241 2.4.1.1. Risk management 241 2.4.1.2 Financial and human resources 242 2.4.1.3. Licence to operate 242 2.4.1.4. Business Sustainability 242 2.4.2. Moral cases for CSR 243 2.4.2.1. The common good 243 2.4.2.2. Corporations as citizens 243 2.4.2.3. Corporate power and dominance 243 3. Corporate moral agency: Ascription of rights, responsibility and retribution 244 3.1. Legal position relating to corporate responsibility and retribution 244 3.1.1. The Common-law doctrine of "respondeat superior" 244 3.1.2. USA criminal law and corporate liability 244 3.2. Senses of (moral) responsibility 246 3.3. Philosophical theories of corporate (moral) responsibility and retribution 247 3.3.1. Ontological moral individualism theory 248 3.3.1.1. Methodological moral individualism argument 248 3.3.1.2. Corporate ends argument: corporations as rationality-driven machines 251 3.3.1.3. Blame-punishment argument 254 3.3.1.4. Corporate motivation argument 255 3.3.1.5. A critical look at the ontological moral individualism theory of CSR 257 3.3.2. Metaphysical moral collectivism theory of CSR 259 3.3.2.1. Corporations as moral actors 259 3.3.2.2. Corporate internal decision structure (IDS) 261 3.3.2.3. Conglomerate and aggregate collectivities argument 264 3.3.2.4. Corporate culture and norms argument 265 3.3.2.5. Problematic aspects of metaphysical moral collectivism theory of CSR 266 3.4. Midways between ontological individualism and metaphysical moral collectivism 266 3.4.1. Patricia Werhane: corporations as secondary collectives and moral agents 267 3.4.2. Richard T. De George: backing the identification theory (Alter ego) 268 3.4.3. Donna J. Wood: Three principles of social responsibility 270 4. Corporate ethical culture as the most promising ethical response to corruption 272 4.1. Preventive managerial strategies 273 4.1.1. Promoting corporate moral excellence 273 4.1.2. Need for ethics of organisational commitment to integrity 274 4.1.3. Constructing a transparent and communicative firm 275 4.1.4. Improving corporate governance 276 4.1.5. "Positive" and "negative" screening of personnel 278 4.1.6. Supporting an ethic of respect for honest whistle-blowing 279 4.1.7. Market incentives language vis-Ã -vis corruption 281 4.2. Punitive strategies 282 4.2.1. Stiffer corporate penalties and executives' imprisonment 282 4.2.2. Corporate adverse publicity campaign 283

Concluding remarks 283

CHAPTER SIX -----------------

A ROLE FOR VIRTUE ETHICS IN RECASTING THE PERSONAL INTEGRITY OF THE CORPORATE WORKFORCE

Introduction 285 1. Relevance of the virtues model of moral development and the formation 286 1.1. Its description and contemporary importance 286 1.2. Aristotelian-Thomistic virtue ethics model 288 1.2.1. (Moral) practice as a foundation for virtuous personal character 288 1.2.2. Benefits of the Aristotelian-Thomistic model to corruption prevention 292 2. An ethic of virtues: Requisite to virtuous corporate workforce 293 3. Business virtues: A better anti-corruption ethical strategy 296 3.1. A critical starting point for corruption prevention 296 3.2. Business virtues applied to corruption prevention 297 3.2.1. The virtue of trust 298 3.2.2. The virtue of courage 300 3.2.3. The virtue of justice 301 3.2.4. The virtue of prudence 302 4. Business ethics: Potential key to recasting the moral integrity of corporate workforce 305 4.1. The pessimistic view on the role of business ethics 305 4.2. The optimistic view on the role of business ethics 307 4.3. Promoting the virtue of integrity among corporate workforce 308 4.3.1. Integrity defined... 308 4.3.2. Hallmarks of (moral) integrity 309 4.3.3. Managerial policies to promote an ethic of virtue of integrity in business 311 4.3.3.1. Quality moral integrity training 312 4.3.3.2. Training in managerial and moral competence 313 4.3.3.3. Values of procedural openness 313 4.3.3.4. Having clearly stated ethical principles 315 4.3.3.5. Encouraging morally courageous corporate leadership 315 4.3.3.6. Rewarding those with moral integrity 316 4.3.3.7. Leaders as moral exemplars to others 318 4.3.3.8. Enhancing moral imagination in business 320 5. Contribution of CST's ethical principles in promoting virtuous behaviour and personal (moral) integrity 323 5.1. Theological reasons for CST 323 5.1.1. Proclamation of the Gospel and denunciation of social injustices 324 5.1.2. A human person as church's object and way 324 5.2. Catholic social teaching 325 5.2.1. CST defined 325 5.3. CST: Its content and ethical methodology 326 5.4. Factors behind the genesis of CST 328 5.4.1. Scandals of Industrial Revolution 328 5.5. Ethical principles of CST and their contributions to the promotion of virtuous behaviour and moral integrity 330 5.5.1. Moral significance of CST's ethical principles 331 5.5.2. Ethical principles of CST applied to promotion of virtuous behaviour and personal (moral) integrity 332 5.5.2.1. Principle of the dignity of the human person 333 5.5.2.2. Principle of solidarity 337 5.5.2.3. Principle of the common good 342 5.5.2.4. Principle of subsidiarity 344 5.5.2.5. Principle of the universal destination of goods 349 5.5.2.6. Principle of the preferential option for the poor 351

Conclusion 354

GENERAL CONCLUSION 357

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