AARHUSUNIVERSITETAU

Lars Johannsen“Reducing Corruption: Focusing on private sector”

Tallinn, Estonia

February, 11. 2016

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Don’t step on the tail of the tiger: managers reaction to private-to-private corruption

ClaimsCorruption: The difference between Denmark and Estonia is a matter of

degree! Common but not accepted

It is important to detect and to get the information about wrongdoing to

management as quickly as possible. Preference for the ‘in-house’ solutions

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ClaimsDanish and Estonian managers all believe in the

personal example…but Danes are more in favor awareness and

ethical training… and Estonians are more inclined to use

punishment and reward…but if corruption threatens the personal

interests of the manager ? … well … don’t step on the tail of a tiger!For debate: does one-size-fit-all or not?

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Estonia and Denmark comparedEstonia Denmark

Corruption in public sector

Middle position (TI) Almost corruption free (TI)

Economy Emerging open European economy

Mature open European economy

Private Sector SME (smaller) SME (larger) plus multinationals

Value system Christian/atheist/-Soviet

Christian/atheist

… But corruption – a difference in degree!

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How common?Encounters: Having encountered at least one of

four types of corruption

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Types of corruption encountered

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Corruption is not acceptable

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The costs of corruption

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Company's reputation Financial loss Manager's career Loss of business network0

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20

30

40

50

60

70

80

90

100

54.9

47.4

38.534.5

69.7

53.3

63.8

39.7

Estonia Denmark

Getting to know about it and quicklyWhistleblowing and management review Getting to know about it quickly –

the internal process

• Studies show that cases discovered through internal measures come more quickly to the management attention

-> reduces the potential loss -> increases possibility to repair any damage that the case might to the reputation of the company

• Tipping management is most common detection method. Other studies show that 40 percent of all cases are discovered through tips.

• In comparison about 30 percent are discovered though management review and internal audit.

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Estonian and Danish managers all prefer internal reporting but more Danes think that reporting to

outside agencies may also be an option.

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Estonia Denmarkrank %

highly agrees

rank % highly agrees

… tell the management or other members of the board

1 92.3 1 89.4

… talk with that colleague 2 48.1 2 42.7… talk with other colleagues 3 45.1 3 55.2… talk at home/with friends (not colleagues) 4 19.4 4 55.2

… go to the police 5 15.8 5 49.6… contact an anonymous hotline 6 8.3 6 26.4... do nothing 7 3.0 7 10.9… go to the press 8 1.5 8 4.9

What to do?

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Estonia Denmarkrank % highly

agrees rank % highly

agrees

Positive personal example by top managers 1 92.9 1 93.3

Develop internal control system 2 85.8 3 86.5

Punish wrongdoers by terminating employment contracts

3 84.7 2 87.2

Punish wrongdoers by decreasing salary, demotion etc.

4 57.6 8 48.4

General ethics training to all employees 5 50.4 6 67.8

Declaration of (financial) interests 6 45.2 7 56.8

Adoption of code of ethics and/or instructions 7 41.8 4 86.3

Raising salaries 8 38.5 11 28.1

Nomination of a trustee with the company 9 27.8 9 41.1

Reporting to law enforcement (police, prosecutor) 10 27.2 5 71.8

Setting up of an anonymous hotline 11 13.2 10 35.8

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Are Estonians and Danes really that different?

Don’t step on the tail of the tiger

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Effective prevention methodsEthics & personnel Control and

managementSalary and demotions

Country Danes + Estonians +

Costs of corruption(Four types)

Firm reputation Managers career +Firm financial +

Type of corruption(Four types)

Kickback -

Age +

Gender

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Does one-size-fit-all or not?

Private-to-private corruption is a global phenomenon.

The importance of getting the information to the managementDetection – costs

Whistleblowing – internal and external

… but ….

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Trust is cheaper than control – and more fun

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