Compliance Through Company Culture and Values: An International Study Based On The Example of Corruption Prevention [PDF]

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J Bus Ethics (2019) 157:797–811 DOI 10.1007/s10551-017-3681-5



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Compliance Through Company Culture and Values: An International Study Based on the Example of Corruption Prevention Kai D. Bussmann1 • Anja Niemeczek2



Received: 30 November 2016 / Accepted: 19 August 2017 / Published online: 2 September 2017  Springer Science+Business Media B.V. 2017



Abstract The aim of this Web-based survey of 15 German companies with an international profile was to identify which higher-level values serve as a basis for a company culture that promotes integrity and can thereby also be used to promote crime prevention. Results on about 2000 managers in German parent companies and almost 600 managers in Central and North European branch offices show that a major preventive role can be assigned to a company culture that promotes integrity. This requires a ‘tone from the top’, ‘ethical leadership’ from the direct superior, and a general set of values that can be encouraged through training courses. Moreover, employees have to perceive these values as promoting their careers. The survey reveals that the companies in this study have basically succeeded in establishing their system of values in their Central and North European as well as their Asian branch offices. Moreover, it shows that the main values preventing crime on the management level are trustworthiness and consistency. Open communication is an important value on all levels of a company, and this is supplemented by transparency, compliance with the rules, and a rejection of behaving in one’s own interest. It is concluded that in spite of regional differences, major international companies can possibly make an important contribution to bringing about



& Kai D. Bussmann [email protected] Anja Niemeczek [email protected] 1



Law School, Martin-Luther-University Halle-Wittenberg, Germany Universita¨tsplatz 6, 06108 Halle (Saale), Germany



2



Economy and Crime Research Center, Martin-LutherUniversity Halle-Wittenberg, Germany Universita¨tsplatz 6, 06108 Halle (Saale), Germany



cultural change in regions with an affinity for corruption by implementing a culture that promotes integrity in both their company and their daily business. Keywords Corporate culture
Corruption prevention
Ethical leadership
Integrity-promoting values
Tone from the top



Preventing Crime Through Socialization and Informal Social Control In society, it is not law enforcement agencies that bear the main burden of crime prevention, but above all socialization agencies such as the family, friends, school, and neighbourhood (see Messner and Rosenfeld 2007). However, companies also serve as an important socialization agency for preventing economic crime (Bussmann 2015). This is becoming even more important because modern moral research has ascertained that the validity of norms is fragmenting (Nunner-Winkler 2004). Although offences such as fraud are still rejected decisively in principle, norm validity has become dependent on the specific situation and compliance with norms has become negotiable. Norms are applied differently in different situations and contexts, and this is leading to their fragmentation. As a result of the dynamic differentiation of life domains, citizens in a modern society have become accustomed to ideas on values and morals no longer possessing absolute validity. As a result, contradictions over values are frequently no longer a cause of concern. In the sports club, in the family, and in the neighbourhood, norms can possess a degree of validity that no longer applies for customers in a supermarket, in dealings with banks or insurance companies, and especially in relation to the state. This explains how otherwise



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completely honest individuals are capable of committing fraud or act corruptly in their daily business as managers: they are acting in a different context. In addition, some economic crimes are not self-evident. Unlike fraud and theft, the harmful consequences of corruption, anti-competitive arrangements, or insider trading are less immediately apparent (Bussmann 2015, p. 441). However, crime prevention is not just based on the internal agency of actors and on their shared norms and values. It is also based on informal social control (Akers 2013; Brown et al. 2013). This does not just include all conceivable social sanctions such as exclusion from shared activities. It can already range from scornful looks, being whispered about in one’s presence, frank criticism of unwanted practices, up to public criticism within the community. Studies on, for example, driving under the influence of alcohol or tax evasion show that norm deviations are influenced strongly by expectations regarding informal sanctions (Grasmick et al. 1993; Worrall et al. 2014). Social pressure exerts a stronger sanctioning effect than most penal sanctions, because of its permanence and comprehensiveness (Nagin and Paternoster 1994). Hence, there is a need for forms of informal social control within companies that have to be supplemented by a whistleblowing culture that will increase compliance when necessary by communicating illegal activities to superiors or other responsible persons such as the legal or compliance department or an ombudsman (see Ko¨lbel 2015, for an overview). Nonetheless, employees will desist from whistleblowing if they personally have to fear social sanctions from either their colleagues or the company (Berry 2004; Rothschild and Miethe 1999). In contrast, if they can trust that their information will be dealt with appropriately, the threshold to whistleblowing may well be lower. The whistleblowing procedure along with how such information is processed is decisive for the readiness to report incidents (Miceli and Near 2002; Rothwell and Baldwin 2006). Hence, an effective compliance management has to possess more than just a legal structure. The concern is not just with rules and their surveillance, but with establishing a company culture that not only promotes integrity but also integrates the willingness to engage in informal social control. In all, it becomes clear that companies and, indeed, organizations in general such as administrations have to carry out a socialization task that other socialization agencies such as the family and the community have not been able to achieve sufficiently because they are embedded in a different social and legal context.



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Company Culture and Values Many companies have become fully aware of the need to convey value management and to establish a company culture through defined values. Nonetheless, the intended crime-preventing effect does not occur per se through the implementation of a compliance management. Its actionguiding potential can develop only when it is embedded within an ethical company culture (Valentine et al. 2014; Verhezen 2010). It seems as if an initially more rule-oriented, in other words, compliance-based culture in companies is developing into one based more on values (Ferrell et al. 2015). However, a company culture that promotes integrity probably contains not only values that already result from criminal norms such as the prohibition of corruption but also values that lead to an internalization of penal law and encourage a shift towards such internalization. The first of these values that promotes integrity is compliance with the rules itself when this becomes a value in its own right. In addition, according to research on behavioural integrity (Simons et al. 2015), it is necessary for this compliance to be both consistent (see also de Bruin 2016, 27) and trustworthy, because contrary behaviour and a poor reputation would, in turn, weaken the value of compliance (see also Verhezen 2010, 189). Moreover, research on the culture of integrity calls for open communication and transparency (Verhezen 2010, 190ff.) so that non-compliant behaviour can be acknowledged and discussed. From the perspective of criminology, not speaking up is a breeding ground for economic crime and particularly for corruption. As pointed out above, there is a need for an informal social control that first becomes possible through a speak-up company culture. Finally, research on ethical climates has shown that an ego-centred value culture generates an increase in counter-productive work behaviour that also includes corruption (Eigenstetter et al. 2007). The starting point for any value management and the development of a culture that promotes integrity always lies with a company’s top management. This so-called ‘tone from the top’ is understood as company management setting a good example and serving as a model for how to deal with various types of economic crime. However, a crucial aspect is its implementation on lower company levels. Accordingly, positively perceived model behaviour by the direct superior also exerts a positive influence on employees (Brown et al. 2005; Kaptein 2011). This can be described as ‘ethical leadership’ (Bhal and Dhadich 2011). This model function particularly encourages acceptance of the programme throughout a company (Weaver et al. 1999). However, the perceived fairness and justice of a



Compliance Through Company Culture and Values: An International Study Based on the Example…



direct superior’s leadership behaviour also contributes to whether a company can succeed in creating an integritypromoting environment that will form a basis for the entire business activity of its managers (Lind 1994; Tyler 1990; Viswesvaran and Ones 2002). This concept of a corporate culture that promotes integrity can also be found in international guidelines. For example, the International Standard 19600 for compliance management systems emphasizes that all measures have to be embedded within a compliance culture. It states: The development of a compliance culture requires the active, visible, consistent and sustained commitment of the governing body, top management and management towards a common, published standard of behaviour that is required throughout every area of the organization (ISO 19600 section 7.3.2.3). And it calls for this to be addressed with ‘a clear set of published values’ and for a ‘management actively seen to be implementing and abiding by the values’ (International Standard ISO 19600 2014, p. 16). The guidelines for the US Foreign Corrupt Practices Act (2004) and the UK Bribery Act (2010) also emphasize the particular significance of a culture based on ethical and corruption-aversive values.



Value Management in a Globalized Economy The value management of international companies is also confronted with the typical regional values of foreign cultures, and these influence the impact of a company’s business ethics (e.g. Scholtens and Lammertjan 2007). Moreover, specialized cross-cultural corruption studies have shown that specific value orientations can be related to the observed extent of corruptive structures in a country. For example, there is a significant relation between the collectivist value orientations of a country and its level of corruption. Such values promote clientelism and the formation and stabilization of exclusive corrupt networks (House et al. 2004; Karstedt 2003). Societies shaped by collectivist values tend to favour the in-group or own organization. Corruption justifies itself in these networks, because ideas on caring for one’s own collective make them susceptible to corruption. Collectivist value orientations are assigned particularly to hierarchic-elitist nations (Karstedt 2003). In the business context, managers in collectivist cultures tend to make unethical decisions when these seem advantageous for their own company or their own extended family, and, as a result, they have an uncritical view of such business practices in their company (Sims 2009).



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Moreover, intercultural comparisons reveal that a high level of generalized trust in institutions, companies, and persons is accompanied by a low level of corruption (Tonoyan 2004; Uslaner 2005). In contrast, citizens and companies with a low level of generalized trust compensate this by building up exclusive networks in which they create their own situation- and person-linked trust. For such networks, corruption is therefore almost a matter of course. According to Paldam (2002), the lack of generalized trust in post-Soviet states is one factor explaining their continuously high level of corruption. In contrast, a low level of corruption, as found, for example, in Scandinavian countries, can be attributed to a high level of generalized trust (Bjo¨rnskov and Paldam 2004). Karstedt (2003) relates both a low level of generalized trust and a high level of insecurity to the conditions in hierarchic-elitist nations. Further relations can be found to a strong power distance in a society represented by a strongly hierarchic social order, clearly differentiated social classes, and an authoritarian value system as frequently found in Latin American and Asian countries (Graf Lambsdorff 2007; Hofstede and Minkov 2013; La Porta et al. 1999). Particularly in countries in which hierarchic-elitist power structures go hand in hand with an extremely unequal distribution of wealth, an existing corruption problem will consolidate even further. In addition, this leads to an increase in the social disposition to avoid uncertainty that makes the use of exclusive (corrupt) networks continue to be attractive. After controlling for prosperity indices such as the BIP, this corruption-promoting influence can also be demonstrated on the dimensions of power distance and avoidance of uncertainty (Getz and Volkema 2001; Graf Lambsdorff 2007). Studies have shown significant relations between power distance and the attitude of managers towards ethically questionable business practices (Christie et al. 2003). Hence, research on corruption fundamentally confirms the influence of nation-specific values on the level of corruption and the efficacy of various efforts to prevent corruption. This makes it necessary to assume that it will be a challenging task to adapt a company culture and the values conveyed by a mother company to a foreign branch or subsidiary in a different culture.



Hypotheses Although the following study addresses the example of corruption compliance, the type of economic crime is interchangeable. Drawing on a survey of managers of large German companies, we first analyse what role they assign to the company culture in their internal company crime prevention.



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As in the rest of society, a company also needs informal social controls that, alongside socialization, bear the main burden of crime prevention. Informal social control was operationalized with case scenarios assessing the willingness to talk to colleagues about their behaviour, to criticize them, and to discuss the observation of compliance infringements with them. As a special form of informal social control, the whistleblowing culture was also considered as a separate variable. It addresses the willingness to turn, if necessary, to the formal agencies of the company through, for example, a whistleblowing system. Elements of a whistleblowing culture include the motive for whistleblowing, fears about using the whistleblowing system, and expectations regarding the consequences of its use. These prior considerations lead to the first three hypotheses: Hypothesis 1 (H1) A company culture that promotes integrity will have a direct negative effect on the willingness to act corruptly.1 Hypothesis 2 (H2) A company culture that promotes integrity will have a direct positive effect on informal social control and increase the willingness to engage in it. Hypothesis 3 (H3) A company culture that promotes integrity will have a direct positive effect on the whistleblowing culture of a company. Alongside the company culture, it is obviously necessary to consider knowledge of the company guidelines and rules. Compliance is hardly conceivable without norm-related and legal knowledge of the legal definitions of active and passive corruption. Managers have to know where the legal boundaries are located in their business practices. Hypothesis 4 (H4) Knowledge of the norms has a direct negative effect on the willingness to act corruptly. There are various ways in which companies can exert a positive influence on their company culture. Alongside the ‘tone from the top’ of company management and the direct leadership behaviour of the immediate superior (ethical leadership), values and behaviours can be taught in training programmes. However, every company already possesses a company culture, and this, in turn, will also influence the development and implementation of any training programme. It has to be assumed that the two will interact. Hypothesis 5 (H5) There will be a positive interaction between a company culture that promotes integrity and the perceived quality of company training programmes. 1



Respondents were given case reports documenting illegally making gifts or accepting exclusive invitations in a competitive business situation.



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Moreover, a company culture is not a construct that can be measured directly. It is more of a latent variable formed in different contexts. Such a culture is carried by the perceived behaviour of top company management (the tone from the top), the leadership of the direct superior (the ethical leadership), and the general values regarding what constitutes a successful career (the culture of success). However, the perception of the tone from the top may be regarded less positively in the subsidiaries abroad—particularly in Asian branch offices. This may be due to the geographic distance and cultural differences. Hypothesis 6 (H6) Concerning the tone from the top, the parent company in Germany will show a higher mean value compared to its branch offices and subsidiaries abroad. Direct superiors function as a link between top company management and the individual employee. For various reasons, the group of direct superiors cannot be expected to set the tone and communicate values to the same extent as top management. For direct superiors, there are a great number of multiplying factors, and a variety of these are exposed to cultural influences. In addition, direct superiors are closer to daily business, so that they are exposed to far more pressure and have far more familiarity with deviant practices. Moreover, they are probably exposed far more to spillover effects from the specific regional culture. Hypothesis 7 (H7) Ethical leadership from direct superiors will show a lower mean value compared to the tone from the top. For companies, the question is not only which elements such as tone from the top or ethical leadership belong to an integrity-promoting company culture but also what values they base this on. In line with the research reported above, the following six values can be assigned a crime-preventing function: compliance, consistency, trustworthiness, open communication, transparency, and non-egoism. The survey in the German parent companies revealed that this conglomerate of six values shapes a company culture that promotes integrity. Hence, it is necessary to examine whether these values are also significant outside the parent companies. Particularly in Asian branches, the company culture can be expected to promote less integrity than in Germany and in North or Central Europe. According to the aforementioned corruption research, Asian countries are characterized by fewer egalitarian values, a greater power distance, and less generalized trust. Therefore, German companies can be expected to face greater obstacles when trying to establish their own value management in these countries. It can be assumed that this greater distance between cultural values will make it harder to transfer a value-based compliance programme to Asian branches and subsidiaries. The



Compliance Through Company Culture and Values: An International Study Based on the Example…



following hypotheses can be derived on the significance of values: Hypothesis 8 (H8) Consistency will show higher mean values in German parent companies and in North and Central Europe branch offices compared to Asian subsidiaries. Hypothesis 9 (H9) Trustworthiness will show higher mean values in German parent companies and branches in North and Central compared to Asian subsidiaries. Hypothesis 10 (H10) The sample of German and North and Central European managers will show higher mean values on open communication than the samples of Asian managers. Hypothesis 11 (H11) The sample of German and North and Central European managers will show higher mean values on transparency than the samples of Asian managers. Hypothesis 12 (H12) Managers from Germany and branches in North and Central Europe will reveal lower mean values on egoism2 than managers from Asian branches and subsidiaries. Hypothesis 13 (H13) Managers from German parent companies and branches in North and Central Europe will show higher mean values on compliance with rules than Asian managers. In line with the current state of research, the willingness to act corruptly among German and European managers will differ from that among managers in Asian branches and subsidiaries. Hypothesis 14 (H14) Asian managers will report higher mean values on willingness to act corruptly than managers from Germany and from North and Central Europe. These hypotheses were tested with data from the research project ‘Effectiveness of anti-corruption programs on crime prevention’.3 Methods The analyses draw on Web-based surveys of managers in 15 major German companies and their foreign branches (see section on sampling below). Hypotheses 1–5 were tested with complex structural equation modelling to simultaneously analyse the cause–effect relations between 2



The value ‘‘egoism’’ was paraphrased in the questionnaire as exploiting one’s authority and acting in one’s own interests, see Table 3. 3 The study was funded by the German Research Foundation (DFG) and ended 3/2016.



801



various factors of crime prevention. This statistical approach integrates and extends both factor analysis and multiple regression analysis (Kline 2011) in order to gain a quantitative estimation of the interdependencies between the manifest and latent variables in a model. The goal is to deliver theoretically derived statements on relations between various real-life phenomena in such formal terms that their validity can be tested empirically (Schumacker and Lomax 2015). In the selected approach, the simultaneous estimation of the model parameters was based on the empirical variance– covariance matrix (Jo¨reskog 1970). The parameters of the model were estimated with the maximum likelihood method (Kline 2011). As the result of the model estimation, standardized estimates were calculated in the form of path coefficients that correspond within the structural model to the beta weights in a regression analysis (Kline 2011). The size of the beta weight is used to make statements on the strength of the relation. In line with Chin (1998), path coefficients contributing more than .20 are taken to be significant. Alongside a descriptive report on the response behaviour of the managers in the countries studied, a nonparametric Mann–Whitney U test was used to analyse the differences predicted in Hypotheses 6–13 between the German parent companies and the branches and subsidiaries in Asia (without China) and branches and subsidiaries in North and Central Europe. This statistical test assesses how far the specific groups differ in terms of their central tendency. This is a distribution-free procedure that tests for significant differences between group medians. This procedure, which shows a degree of robustness against outliers, was chosen because the data do not follow a normal distribution. Hypothesis 14 was examined with a Chi-square test for homogeneity. This procedure can be used to test whether a feature has an identical distribution in two independent samples and is therefore used to determine whether the willingness to act corruptly differs across the various manager samples. Samples The study focuses on international companies and corporations that have already implemented an anti-corruption programme and whose parent company is located in Germany. The results of this study do not deliver a representative picture of German business, but show findings on companies that possess a well-developed compliance management that is, at the end of the day, an expression of a differentiated value management. In these companies, managers were surveyed regarding their perceptions of, attitudes towards, and experiences



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with compliance-relevant situations along with the values conveyed in their company. This information was used to determine relations between the willingness to act corruptly and various value dimensions. Managers were informed about the survey in a letter from their company inviting them to participate.4 Within each company, managers were selected at random. Participation was voluntary for all managers. Managers from 15 large German companies,5 including four corporations, were surveyed with the help of a Webbased questionnaire.6 The companies sampled belong to the automotive (n = 9), retail and consumer (n = 4), and transport and logistics (n = 2) sectors. They have an average of over 120,000 employees worldwide with the smallest company having roughly 15,000 employees. A large proportion of the managers (n = 1988) work in the German parent company and are responsible for the German market. A total of 372 managers are responsible for a branch office in North or Central Europe, and 225 managers for a branch office in Asia. Results on the Significance of Company Culture To control for the influence of different regional cultures, only a sub-sample was used to study the significance of company culture for internal company corruption prevention. In an international sample, there would probably be too many cultural effects to obtain a good model fit. Therefore, Germany was selected for this multivariate analysis as the country with the largest culturally homogeneous sub-sample (n = 1988). Taking the sample of German managers, complex structural equation modelling was used to simultaneously analyse the cause–effect relations between various factors of crime prevention within the German parent companies. The goal of this analysis was, first, to identify the underlying prevention factors in the German compliance system that serve as a platform for the compliance systems in foreign subsidiaries; and second, to measure their efficacy. A causal model was formulated that had a satisfactory model fit and therefore provides a good reconstruction of conditions with the help of selected model parameters. This model can be used to deduce the significance of individual factors for the company’s internal corruption prevention. The significance of individual factors for a company’s internal corruption prevention can be read off from this 4



To ensure anonymity and data protection, the survey was actually carried out by an external company. 5 A total of 4302 managers were surveyed in this study. 6 Data were collected between the third quarter of 2012 and the third quarter of 2014. The response rate in the individual companies ranged from 30 to 35%.



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model (Fig. 1). It shows that, in line with Hypotheses 1–3, a company culture that promotes integrity has a direct influence on the following dependent variables: 1. 2. 3.



The corruption risk within the company (own corrupt behaviour and that seen in others) (b = -.61***). Informal social control (b = .18*) Positive whistleblowing culture (b = .37***)



A case scenario approach was used to study Hypothesis 1 on the corruption risk within the company. This contained reports on own daily business behaviour (self-reports) as well as reports on the behaviour observed in the immediate circle of colleagues. Results confirm that a company culture that promotes integrity reduces the willingness of managers to engage in corrupt business practices. The influence on the dependent variable ‘corruption risk within the company’ is direct (b = -.61***). To study Hypothesis 2, informal social control was operationalized with case scenarios addressing the willingness to talk to colleagues about their compliance violations, to criticize them for these violations, and to discuss observed compliance violations with colleagues. The multivariate analysis confirms Hypothesis 2. A company culture that promotes integrity directly increases the willingness to engage in informal social control (b = .18*). If the general climate in a company promotes integrity, this increases the willingness to talk to colleagues about their possible misconduct and compliance violations. In addition, this willingness is supported directly by the acceptance of the company’s anti-corruption programme (b = .26***) and knowledge of norms (b = .33***). The counterpart to informal social control is formal reactions to compliance violations. To study Hypothesis 3, the willingness to use a whistleblowing system is conceived as an independent cultural variable. A positive whistleblowing culture is present when whistleblowing is associated with positive expectations and few fears about personal consequences and consequences for one’s career. Results indicate that such a whistleblowing culture is strengthened by a company culture that promotes integrity (b = .37***) and particularly strongly by the acceptance of the company’s anti-corruption programme (b = .60***). The latter is additionally influenced by the internal culture over a range of other paths. The dependent variables informal social control and positive whistleblowing culture also have direct effects on corruption behaviour. Whereas a high informal social control leads to a lower tendency to engage in corrupt practices (b = -.08, ns), a positive whistleblowing culture—because of the so-called control paradox (Bussmann 2007)—leads to franker and thereby more frequent reports on the tendency to engage in corrupt practices among colleagues (b = .55**).



Compliance Through Company Culture and Values: An International Study Based on the Example…



803



Fig. 1 Structural model of the crime prevention efficacy of anticorruption programmes. The structural model reveals the following goodness-of-fit criteria: v2 = 1241.16, df = 211, CFI = .93, TLI = .91, RMSEA = .05. The general model fit was good. Numbers denote path coefficients. *p \ .05. **p \ .01, ***p \ .001. Cronbach’s alpha: tone from the top a = .781; ethical leadership a = .898;



open communication a = .846; transparency a = .835; non-egoism a = .739; compliance with rules a = .734; knowledge of norms a = .362; quality of training a = .768; acceptance of anti-corruption programme a = .786; informal social control a = .782; whistleblowing culture a = .907; willingness to act corruptly a = .710



Alongside company culture, the second significant factor reducing the risk of corruption is knowledge of the prevailing norms regarding corruption (b = -.35***). This confirms Hypothesis 4. These two strong direct crimepreventing effects are additionally supported by a negative attitude towards corruption (b = .50**). Moreover, the multivariate analysis shows the central role of high-quality training.7 This increases the knowledge of norms (b = .19**), encourages an attitude that rejects corruption (b = .28***), and increases acceptance of the anti-corruption programme (b = .28***). As postulated in Hypothesis 5, there is a strong interaction with company culture (b = .64***).8 The higher the rating assigned to training, the more frequently it is carried out, and the more varied it is, the higher the rating on (perceived) company culture and vice versa. A company culture that promotes integrity has a direct positive influence on the rejection of corruption



(b = .64***)9 and also impacts directly on knowledge of norms (b = .21***). The dominant culture in a company also impacts significantly on whether managers know which business practices violate internal company guidelines or even whether a violation is a criminal offence. It was assumed that the variables rejection of corruption, knowledge of norms, and acceptance of the anti-corruption programme function as moderators within the framework of the model. This is because even without the influence of these variables, the independent variables (e.g. integritypromoting culture) still show an effect on the dependent variables (e.g. the willingness to act corruptly). Hence, these three moderating variables influence only the size of the effect. The study also controlled for possible effects of personality characteristics. Analyses based on complex structural equation models reveal that these are, at best, only secondary to company culture, although their inclusion does improve the model fit (see Bussmann 2015, for more details).



7



The quality of training was derived from the evaluation of schooling measures by the managers in the survey as well as the frequency and variety of perceived schooling and training provisions (e.g. workshops, face-to-face sessions, online trainings). 8 Such a high correlation always raises a suspicion of multicollinearity. Nonetheless, a test of collinearity revealed thoroughly acceptable tolerance values of above .50. Therefore, a bias due to collinearity can be ruled out here.



9



Respondents were given items on corruption-specific attitudes assessing their opinions on the possible advantages and disadvantages that could arise from corruption situations both for the company and for society.



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Tone from the Top



top management that are not conveyed fully to managers in Asian branches. This is possibly an effect of hierarchicelitist Asian cultures characterized by a greater power distance and less generalized trust.



Value management has to start on the top management level of a company (the tone from the top). This also applies in the present context of crime prevention: values have to be codified, communicated, and implemented in a top-down manner. First of all, this means that the fundamental values of a company have to be named in the form of, for example, a code of ethics. For this example of a study on corruption compliance, an effective compliance management requires clearly communicated corruptionrejecting values. In this way, top management lays the foundation for its own specific company culture that inhibits corruption. With the help of guidelines and rules in the form of, for example, work directives, it exerts a regulatory influence on daily business and thereby communicates the main compliance message in the form of the tone from the top. Perceived behaviours and attitudes may well affect several values in this, and there are also overlaps. The multivariate analyses show that consistency, trustworthiness, and open communication are significant values for the tone from the top (Table 1). In the German parent companies, nearly all the managers surveyed perceive their top management in this way. This reveals that these companies have already succeeded in laying the foundations for a crime-preventing value management, and that these values are also visible in all company contexts. At the same time, these companies are characterized by value-based company cultures that promote integrity. This supports the conclusion that their compliance management system is embedded in these values (Tables 2, 3). Moreover, in line with Hypothesis 6, the tone from the top is regarded as being less positive in foreign branches and subsidiaries (see Table 4). The greatest distance is found to managers in Asian branches. It is particularly values expressing the trustworthiness and consistency of



Ethical Leadership: Model Function of the Immediate Superior A sustained implementation of the desired behaviours and values can be achieved with the help of training measures, but it also has to be mirrored in the leadership behaviour on all levels of management. In general, results show that the respondents in all the regions compared perceive their immediate superiors as being important models. However, compared to the tone from the top, there are recognizable weaknesses. Across all three regions, mean scores on the tone from the top scale (M = 4.72) differ significantly (p = .000) from mean scores on the ethical leadership scale (M = 4.26). This confirms Hypothesis 7. In all regions, trust in the immediate superior is somewhat lower, and it is lowest of all in the Asian branch offices. In all regions, about four-fifths of respondents perceive behaviours expressing the value consistency, but in the Asian branches, the superior is less of a model (‘sets an example’, 77%) than in western regions (each 86%). For one-third of German managers, the immediate superior also fails to adequately fulfil the communication function between top management and lower management. Only 67 per cent of German managers consider that their immediate superior sufficiently discusses how to handle cases of corruption in business transactions, whereas this is viewed more positively in other regions (77 or 82%). In Asia, far more managers report that their immediate superior discusses cases of corruption with them and also pays more attention to which means are applied to achieve



Table 1 Behaviours and values perceived in top management [the tone from the top (the set of questions on the perception of top company management was specially developed on the basis of Steßl’s My top management…



(2012) scale to assess illegal actions. All items were translated into English by a professional translator)] Percentage of agreement of managers in branch offices in… Germany



North and Central Europe



Values



Asia1



Would rather let a business transaction fail than have to use bribery



95



94



85



Consistency



Resolutely backs company guidelines



96



91



86



Trustworthiness



Credibly conveys that bribery is not a legitimate practice



96



93



88



Trustworthiness



Expects business partners to take a stand against corruption



96



92



90



Consistency



Also takes a public stand against corruption



96



88



91



Open communication



1



Asia without branch offices in China



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Compliance Through Company Culture and Values: An International Study Based on the Example… Table 2 Perceived behaviours and values in the leadership behaviour of immediate superiors [‘ethical leadership’ (the items describing the behaviour of the direct superior were taken from Brown et al. (2005)



805



ethical leadership scale (ELS) and partially reformulated for the present survey)]



My supervisor…



Percentage of agreement of managers in branch offices in…



Values



Germany



North and Central Europe



Asia1



Sets an example regarding how to do things the right way in terms of business ethics



86



86



77



Consistency



Can be trusted Criticizes employees who violate ethical standards



86 88



90 80



83 83



Trustworthiness Consistency



Defines successes not just by results but also by the way they are obtained



77



85



82



Consistency



Listens to what employees have to say



83



87



84



Open communication



Discusses with staff how to handle corrupt situations in business dealings



67



77



82



Open communication



1



Asia without branch offices in China



Table 3 Values that promote careers in daily company business [culture of success (this concept was assessed with a specially constructed, theory-based scale drawing on items formulated by



various authors on the topics of organizational culture, ethical climate, and illegal activity within an organization (Daumenlang and Mu¨skens 2004; Eigenstetter 2006; Steßl 2012))]



Successful employees…



Percentage of agreement of managers in branch offices in…



Values



Germany



North and Central Europe



Asia1



Openly question management decisions if they have a good reason to do so



65



70



71



Open communication



Address problems openly



69



83



78



Open communication



Make business decisions transparent



67



88



83



Transparency



Deal with business partners honestly and sincerely



88



93



86



Transparency



Keep silent if others infringe company guidelinesa



7



7



13



Neglect company guidelines if it will help to do a job wella



6



9



13



Compliance with rules Compliance with rules



Act on their own authority when making decisions with far-reaching consequencesa



9



27



35



Non-egoism



Exploit their authority in the company to further their own interestsa



7



22



26



Non-egoism



a



Item was inverted in the scale



1



Asia without branch offices in China



business success. This could be due to the more critical nature of the problems on the spot in these countries. In sum, it can be seen that even in companies with an advanced compliance programme, there has not been a complete success in openly communicating the tone from the top to lower levels—even when it comes to critical topics such as how to deal with corruption. This applies both for parent companies as well as the branches and subsidiaries surveyed here. Nonetheless, it is also clear that



lower levels of management are fully aware of their personal responsibility and contribute to open communication in the company. In the North and Central European branch offices as well as in those in Asia, managers seem to be particularly aware of their special role in engaging in open communication and maintaining the central compliance message of the parent company, and they invest more in setting a good example than managers in German parent companies.



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K. D. Bussmann, A. Niemeczek



Table 4 Group means on the survey scales and results of a U test of significant group differences Scale



Means of managers from…



Germany versus Asia1



North and Central Europe versus Asia1



Germany



North and Central Europe



Asia1



U



p



U



p



Tone from the top



4.74



4.68



4.56



344,830.5*



.017



40,242.5



.376



Consistency



4.47



4.51



4.38



223,229.5



.972



39,701.0



.275



Trustworthiness



4.63



4.67



4.51



218,906.0



.568



38,342.0



.052



Open communication



4.11



4.23



4.26



262,450.0***



.000



44,698.5



.160



Transparency



4.20



4.50



4.36



258,508.0***



.000



38,626.5



.085



Non-egoism



4.06



3.68



3.42



152,647.0***



.000



36,416.0*



.012



Compliance with rules



4.12



4.22



4.07



227,203.0



.597



38,959.0



.166



* p \ .05. *** p \ .001 1



Asia without branch offices in China



Culture of Success in a Company Culture that Promotes Integrity Although top and middle management codify the binding rules and try to set a good example by modelling the values of their company in their work, a company culture that promotes integrity and its values needs to become internalized on all management levels. This also requires the certainty that these values will not stand in the way of one’s personal career. Therefore, respondents were not asked about potentially idealized value orientations but only about the significance of values with which they can also succeed within their company. Only then will there be sufficient incentives for business practice to be guided by the specific company value orientations. This culture among managers is labelled the culture of success. It is defined as those behaviours that lead to a successful career in the company. Therefore the study asked: ‘Companies place a variety of demands on their employees. What makes a successful employee stand out in your company?’ Managers in the three regions differ in their perceptions of the value of open communication. The largest difference is found between German managers on one side and North and Central European as well as Asian managers on the other. German managers seem to perceive a frank discussion of problems or concrete management decisions in daily business as being less favourable for their own careers. All regions assign a relatively high significance to the value of transparency. Values such as open communication and transparency are central pillars of the culture managers perceive on all levels and under different regional cultural conditions. There are overlaps between these two values, and they also interact. Transparency should be understood as more of a structure-forming value that makes information, procedures, or decisions recognizable and



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understandable for all relevant company employees along with others involved with the company. Whereas transparency grants access to information, open communication additionally calls for actively passing on information and reflecting on it. This value emphasizes both the sending of compliance messages and an uncensored consideration of them (such as discussing corruption situations, being open to the concerns of employees, and questioning management decisions). Similar support is given to the value compliance. Roughly nine out of ten managers in Germany and in the European and Asian regions surveyed consider their company’s guidelines and rules to be unconditionally binding. Only a very small group view keeping silent about violations and neglecting company guidelines to achieve success as being part of their own culture of success. However, such managers were found more frequently in Asian subsidiaries. These companies seem to have succeeded to a high degree in establishing compliance as a value abroad as well. Even in the case of short-term individual interests, the majority of managers consider that the company values guide their actions. Moreover, even in Asian cultures, these companies have already succeeded in establishing a solid compliance basis that draws on a shared understanding of the rules among managers. Things look different when it comes to acting in one’s own interest and exploiting one’s own authority as part of one’s own culture of success. In the German parent companies, less than one in ten view this as giving them a career advantage in their company. Among managers in other European and Asian branch offices, this proportion increases threefold. Here, one in three to four managers sees a possible career advantage from acting in their own interest. The basic rejection of egoism, which finds a high degree of consensus in German parent companies, already



Compliance Through Company Culture and Values: An International Study Based on the Example…



weakens in branch offices in neighbouring countries and is much weaker in more distant branch offices in Asia. Results on the Meaning of Corporate Values In the following, Hypotheses 8–13 on the different regional levels of values are analysed with significance tests (Table 4). These show that only H12 can be confirmed. Managers in Asian branches perceive acting in their own interest and exploiting their own authority to be more strongly a part of the company culture than managers in German parent companies and North and Central European branch offices. The rejection of acting in their own interest is particularly significant in terms of the identity-promoting effect of values. Acting in one’s own interest particularly expresses a lack of community orientation and thereby characterizes the lack of cohesion found among members of a company. All further hypotheses (H8–H11, H13) cannot be confirmed. There is a tendency for managers in Asian branch offices to perceive consistency, trustworthiness, and compliance with rules as being less part of the company culture than managers in German parent companies and North and Central European branch offices (H8, H9, H13). However, these differences fail to attain statistical significance. In addition, some significant differences take an unexpected direction. For example, the values open communication and transparency are perceived as being stronger in foreign branch offices than in the German parent companies. This difference attains significance between German and Asian managers. Hence, in the sample studied here, there is only partial confirmation that a hierarchic-elitist Asian culture characterized by a greater power distance and less generalized trust inhibits the culture of integrity in German companies. Willingness to Engage in Corrupt Behaviour in Competitive Situations The risk of corruption in a company is finally an expression of how managers and employees deal with corruptive situations in their daily business. However, any replies to questions on such sensitive issues will be influenced strongly by social desirability effects. Therefore, alongside self-reports, we also asked respondents to rate other employees. We asked them to tell us how probable they considered it to be that colleagues would either accept a bribe from or give a bribe to a potential business partner in a competitive situation. The proportions of those who are certain that their colleagues would act corruptly in such a situation as well as the proportions of those who are uncertain about how their colleagues would behave hardly differ between Germany



807



and North or Central Europe (see Fig. 2). In Germany and North and Central Europe, roughly one in ten managers is uncertain about the integrity of her or his colleagues. However, clearer differences emerge when these regions are compared to branch offices in Asia. In Asia, the proportion of those who are certain that their colleagues would act corruptly is more than twice as high as in Germany or Europe. Additionally, more than one in ten managers in Asia are uncertain about how colleagues would behave in a competitive situation in which they are confronted with giving or taking a bribe. For the Asian branch offices of German companies, this results in a risk group of one-fifth of all employees whose integrity is questionable. In Germany and other European branch offices, only roughly one in ten belong to this risk group. These differences also prove to be statistically significant. Hence Hypothesis 14 can be confirmed: managers in Asian branch offices report a greater willingness to act corruptly in daily business than their German and North or Central European colleagues.10 This shows that particularly in Asian countries, German companies face greater obstacles in the implementation and efficacy of their compliance programmes than in directly neighbouring European countries. This may also be due to a greater difference between cultures.



Discussion The multivariate analysis reveals the central significance that an integrity-promoting corporate culture has for many of those factors that have crime-preventing effects. Such a culture has a directly significant effect that reduces the willingness to act corruptly (Fig. 1). It also has a direct effect on the support for both informal social control and a whistleblowing culture. Here as well, the multivariate analysis reveals that alongside the company culture, training in knowledge of the norms is important, whereas this, in turn, is also influenced positively by the company culture. An effective company culture does not just depend on the tone from the top in the company’s top management and the ethical leadership of direct superiors but also on training courses, with results showing a strong interaction between high-quality training and company culture. Nonetheless, the multivariate analysis has to be restricted to the German sub-sample, because the international sample would probably produce too many cultural effects to achieve a good model fit. An internationally valid model 10



Group comparisons of the appraisal of corruptive behaviour in Germany versus Asia v2 = 17.914***, p = .000 and in North and Central Europe versus Asia v2 = 14.791***, p = .001 (Asia without branch offices in China).



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K. D. Bussmann, A. Niemeczek



12% 8% 3%



7%



7%



2% Germany



North & Central Europe (rather) yes



Asia



uncertain



Fig. 2 Appraisal of whether colleagues would give or take bribes in a competitive situation



would therefore have to take more cultural dimensions into account in each country. This weakness will be addressed in a continuation of the research project. The study also permits no statements on the compliance situation for all German companies and their foreign subsidiaries, because data were collected exclusively in companies with an advanced compliance programme. Hence a real control group is lacking. This methodological weakness will also be addressed in a future project. Nonetheless, the study does permit the analysis of the postulated relations—particularly those on the significance of the company culture. In contrast to compliance-based cultures, value-based company cultures strive to achieve an internalization of a company’s own values that should guide employees and promote their integrity independent of concrete rules. The companies in the present survey can be assigned to this second phase in the development of culture and compliance, as is revealed particularly in the results on the dimensions of a company culture that promote integrity. Hence, the study makes it possible not only to analyse the significance of a company culture but also to make generalized statements for companies with valuebased company cultures. Therefore, it is representative of these companies. To the extent that scores on the values of German companies can also be compared with those in their foreign subsidiaries, several of the hypotheses cannot be confirmed (see Table 4). Counter to Hypotheses 8–13, hierarchicelitist regional cultures do not necessarily influence company cultures by impeding integrity. Evidently, compliance with the rules can be established as an independent value even under the influence of foreign local cultures. In the present sample, Asian managers (without China) in German companies reveal no significant differences on the values consistency and trustworthiness compared to German managers or managers from other North and Central European subsidiaries. These two values are conveyed above all by the behaviour of top management and that of direct superiors in the company. Evidently, German companies succeed in conveying the tone from the top to the



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non-German managers in their foreign subsidiaries so that their perception of the compliance message from top management is not impaired by cultural differences. Nonetheless, the value of non-egoism scores significantly higher in the group of German managers (H14). Conceivably, managers in the German parent companies and other North and Central European subsidiaries place less emphasis on their own interests, so that their business decisions are shaped less by egoism than those of the Asian managers. In collectivist societies, these ‘own interests’ are frequently the interests of one’s own reference group, which may be the family or also the proximal working environment. Favouring this reference group is often driven by a notion of care that is characteristic for a collectivist value orientation and is found particularly in hierarchic-elitist societies. However, when it comes to the values transparency and communication, it is not clear whether one can actually assume higher levels in Asian countries with a collectivist value orientation. It is even conceivable that a greater willingness to communicate may reveal positive effects of a collectivist compared to an individualistic regional culture. A decisive examination of this and further aspects of the company culture and the culture of success will have to wait until the second stage of this research project that will include cultural comparisons between groups in different countries. Nonetheless, the present study can confirm the hypothesis that hierarchic-elitist cultures promote corruption (H14). Asian managers in German companies reveal a significantly higher willingness to apply corrupt practices in daily business compared to German managers and managers in North and Central European subsidiaries (Fig. 2).



Compliance Through Company Culture and Values: An International Study Based on the Example…



Conclusion It can be seen that compliance management is a complex task that can be achieved only in combination with a company climate that promotes integrity. Provision for this is made in the international legal regulations and the recently published international ISO 19600 standard for compliance management systems. However, the communication of normative limits such as business ethics requires a company culture that promotes integrity. A successful compliance management cannot be limited to imparting knowledge of the laws, providing guidelines, and imposing controls. Rule-based and value-based compliance management are not alternatives but complement each other (Verhezen 2010). The need is to communicate values that promote and internalize integrity in different contexts in a way that supports knowledge of the norms and simultaneously conveys the all-embracing principles of the company. Hence, compliance management, as studied here for the example of corruption prevention, has to be viewed as a thoroughly complex cross-sectional task that needs to include all levels and contexts of a company. Without the successful transfer of a tone from the top and the ethical leadership of the immediate superior, no effective compliance management is possible. Compliance management needs the support of a general culture of values that has to be experienced as not impeding but promoting careers. Above all, it has to place value on trustful and frank discussion among managers. Alongside this orientation towards communication, it requires consistency and trustfulness as central values—particularly on upper management levels. Guidelines will be accepted and adopted only when top management together with middle management serve as models by being uncompromising, positioning themselves openly, sanctioning violations consistently, and so forth. Such a company culture should not be viewed as static. It can be shaped in a direction that promotes integrity through top management, middle management, and training courses. Training measures can decisively support a change of culture. They do not just make it possible to communicate guidelines and rules within the company but simultaneously transport values that promote integrity. They represent a medium for the company values that promotes integrity and leads to an integrity-oriented occupational socialization comparable to the primary or secondary socialization found in the family, circle of friends, and school that helps prevent crime in general (Bussmann 2015). However, companies face major challenges when transferring their culture to foreign subsidiaries.



809



Nonetheless, the results of the present study show that the companies surveyed here have basically succeeded in establishing their value system among non-German managers in Asian subsidiaries. Hence, compliance can also succeed in countries with a strongly collectivist value orientation. Nonetheless, the stronger collectivist orientation in Asian countries is still reflected in a greater willingness to behave and make decisions in one’s own interest in everyday business. A greater willingness to engage in corrupt business practices can also be confirmed. This reveals the effect of a society shaped more strongly by power distance in which hierarchies, responsibilities, and decision-making powers are questioned more rarely or with more reserve. As the cross-cultural comparisons show, companies that possess an established compliance and value management can succeed in taking what has become a broadly wellestablished company culture to promote integrity in Germany and transferring it to their foreign branch offices. This grants them a sociopolitical function that should not be underestimated. Of course, companies can hardly create the socio-structural and institutional preconditions to fight corruption in a country such as rule of law; freedom of opinion, the press, and demonstration; and the correspondingly independent institutions. However, they can make an important contribution to cultural change by not only pursuing an anti-corruption policy in their daily business but also implementing a culture that promotes integrity in their company. One reason why major companies can make a sociopolitical contribution to changing local value orientations and everyday norms that encourage corruption is the fact that they reach a large part of the working-age population. The significance of major international companies should also not be underestimated, because the companies in the present sample also exert a strong pressure for compliance on their dependent supply chains in order to avoid controversy themselves (Bussmann 2015). In this sense, their compliance programme could spread to foreign business cultures and eventually to the rest of a society as well.



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