ABSTRACT

Our research contributes to the emerging topic on the role of corporate governance (CG) towards corruption. Since the 1990s, the term CG has come into everyday usage in business and financial communities (Carlsson, 2001; Malin, 2010) and is becoming a global phenomenon focusing on securing shareholder value (Carlsson, 2001; Enquist et al., 2006) and stakeholder value. In parallel with this trend, transparency and discloser has also become familiar in the corporate world, and is a global phenomenon in the 21st century. The emergence of corporate governance as tool for tackling financial crises and corporate scandals has created the need for wider transparency. Existing research concentrates on corporate governance and its development, but rather neglects the gap towards assessing fundamental institutional weaknesses, and corruption in the private sector. Moreover, as Wu (2005) argues that there is a negligance of the supply side of corruption in literature and states the need for more investigation regarding the understanding of the relationship between corruption and corporate governance. Taking these factors into account, doing research on the relationship between corruption and corporate governance in a industrialised country from the aspect of the supply-side, seemed justifiable. This paper identifies the need for new governance thinking, based on stewardship and transparency and its impacts in reducing corruption. The empirical study involves five qualitative case studies of transparency and disclosure in Germany (2 cases on disclosure and reporting of multinational companies, 2 cases of transparency of non business organizations, and 1 corporate governance code).

In this paper we are not arguing on the role of CG as control or reporting initiative for corruption, but its role to shun institutional weakness on reducing corruption. Accordingly, our research question can be formulated in the following way: what is the role of corporate governance in protecting corruption?

To answer this research question, we studied German CG code as Germany is one of the role models in fighting corruption. The German CG code was triggered by global scandals such as Enron but developed after the Siemens AG scandal (Bostan et al., 2010). Cromme (2005) describes governance as “a term describing good, efficient management and supervision of companies on the basis of internationally recognized standards in the interests of the company’s owners and its social environment.” (p. 5).  Wu, (2005) in his extensive study underlines the problem with corruption and its importance for companies and governments. Transparency International (2009) considers strong corporate governance system is a vital component of company efforts to reinforce the right incentives and practices and to address the corrupt practices they confront. Selznick (1992) separates the two steering concepts of Management and Governance, but at the same time argues that they form a continuum. Governance takes account of all the interests that affect the viability, competence and moral character of an enterprise (ibid). The New York Times recently describes how companies still have more corruptive behavior in CG based on several cases of MNC from USA (April, 2013).

Several researches and organization emphasized the harms of corruption against development in the public sector, but very few studies assess the importance of corporate governance in combating corruption. There is a need for deeper studies on its influence in business. Thus, the present results indicate, not only the positive relationship between corporate governance and corruption, but also reveal the characteristics of dynamic governance codes within a broader governance framework.