Toward a Theory of Second-Order Corruption

Abstract

EssayTransparency International (2011) defines corruption "as the abuse of entrusted power for private gain," and based on this understanding, many authors have applied similar definitions of corruption in fields of both management and politics. Within the field of management, Anand, Ashforth, and Joshi (2004) see corruption as the "misuse of an organizational position or authority for personal gain" (p. 40), and others agree that corruption involves the violation of rules for personal or group gain (Clarke, 1983;Williams, 2000). In the field of politics, Bratsis (2003) defines corruption as the subversion of the public good by private self-interest. Underlying all these rather similar definitions of corruption and fundamental to the way many management and political science scholars use the concept is the notion of "abuse of power."In this article, drawing on the possible interpretations of this "abuse of power," I argue that two kinds of corruption, which I refer to as first-order corruption and second-order corruption, can be identified. First-order corruption is the abuse of power by either individuals or groups for private gain given a system of existing rules or norms, whereas second-order corruption is the abuse of power by individuals or groups in that they change the existing rules or norms to unfairly benefit from them. For example, when an executive lies about the profitability of her corporation so that she can receive a greater bonus at the end of the year, she engages in first-order corruption. However, when the same executive uses her power on the board of directors to arrange her compensation rules in such a way that she always receives a bonus regardless of her performance as head of the corporation, she engages in second-order corruption, because this use of a bonus contradicts its main purpose, the alignment of the financial interests of the executive with the interests of the corporation's shareholders. In other words, in the first case, she breaks the rules, whereas in the second, she shapes (re-writes) them in such a way that they unfairly benefit her.Second-order corruption is important because of certain unique characteristics it has that make it harder to identify and more harmful for the corporation and society in the long run. First, second-order corruption is subtler than first-order corruption, which makes it harder to detect. Second, it tends to be systematically invisible, either because it has a cover of legality, or because it is hidden behind many other complex rules and procedures. Third, second-order corruption can be much more serious/central than first-order corruption, because those who can engage in it-those who can influence the rules so that they receive an unfair advantage-are almost always very high up in the food chain and would be unlikely to engage in second-order corruption for trivial sums or matters. Moreover, second-order corruption often plays a central role in the building of unethical systems within business organizations. Second-order corruption can therefor...

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“…At the country/state level, Hellman, Jones, and Kaufmann (2000) discuss the notion of "state capture," which they define as the efforts of business firms to alter their surrounding institutional environment so that they can benefit. Research dealing with this kind of corruption is rather sparse, but given that this kind of corruption can cause serious, long-term damage (Zyglidopoulos, 2016), it is important for researchers to expand their understanding of "corruption" to include second-order corruption and state capture phenomena. Moreover, some of the activities involved here might be immoral and corrupt, but not necessarily illegal.…”

“…(3) Second-order corruption: As mentioned above, we would like to enrich the definition of corruption by differentiating between first-and second-corruption, a distinction that can and has been applied beyond the organizational level (Zyglidopoulos, 2016) to the country level of analysis. At the country/state level, Hellman, Jones, and Kaufmann (2000) discuss the notion of "state capture," which they define as the efforts of business firms to alter their surrounding institutional environment so that they can benefit.…”

“…We believe we should enrich and expand this definition by differentiating between first-and second-order corruption. First-order corruption refers to the abuse of power within existing systems or rules or norms that individuals abuse for their own benefit, whereas second-order corruption where executives use their power to unfairly re-write and shape the organization's norms and regulations in their favor (Zyglidopoulos, 2016). However, beyond expanding the definition of corruption, we must emphasise the fact, often ignored, that corruption is a very rich, complex, multidimensional construct, embedded in different ways in different cultures and refers to many kinds of activities.…”

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