Does Combatting Corruption Generate Integrity?

Properly preparing business students means grooming them for realities they will face in their day-to-day working lives and, unfortunately, that can mean facing corruption and bribery. A large part of CEU's Business School's 25-year legacy in Central and Eastern Europe has been leading business education as the region transformed into a free market. With a $3 million grant from Siemens AG (within the framework of its Integrity Initiative), Professor Peter Hardi's Center for Integrity in Business and Government at CEU Business School has built an innovative new curriculum that confronts students with real-life scenarios as they are earning their degrees. The School's approach was highlighted at the March 13 event “Managing Integrity: the Bad and the Good” at CEU.

“One of the key elements in the CEU Business School's distinctiveness is that it's staked out a niche in this field: integrity in business,” said CEU President and Rector John Shattuck. “We have crosscutting interests in different parts of the University in this field. Integrity is a major challenge in this region and beyond; it's one of the two issues that holds back the full and active development of free-market economies and active development of effective, vibrant economic growth. These issues – how to promote integrity and how to promote entrepreneurship and risk-taking – are at the heart of the CEU Business School today.”

With so many headline-grabbing stories like the Bernie Madoff scandal and the sub-prime mortgage disaster that led to the U.S. economic crisis, it's hard to turn a blind eye to rampant corruption. But what is its overall effect on business? “It's bad for many reasons,” Shattuck noted. “It undermines the concept of an open market. It makes it difficult for competition to know what's going on in that market. It reduces opportunity within markets, it drags down the rule of law, and ultimately stands in the way of successful businesses.”

Since economies in this part of the world are still relatively new to market economies, there is a significant learning curve that, perhaps, Western business schools don't address.

“Western schools tend to offer curricula for their home base – it's a cookie-cutter strategy


CEU Business School Dean Mel Horwitch discusses the School's niche in integrity education. Image credit: CEU/Daniel Vegel

that they export abroad,” said CEU Business School Dean Mel Horwitch. “But this model is not enough, especially for this region. Conducting business here is not like conducting business in Scandinavia or New York City. Our managers have that backbone – the internal gyroscope to act with integrity. There are dismal transparency rankings in this region and beyond. We need to move beyond principles, we need to develop real-life material.”

CEU's Business School aims to use the latest research and most effective materials to not only help current students, but to help “reset economies in a positive way,” Horwitch said. By being a leader in contributing to business education and defining professional management as a whole, the School is a catalyst to make management education relevant and to change the Central/Eastern European region, Horwitch noted.

In order to shape new curricula, Hardi asked the question: why do we teach integrity if it has no or little impact? Hardi and his team created a survey that was answered by 400 top executives who expressed a genuine interest in integrity research and education.

“We wanted to know if business leaders are really interested in integrity culture,” he said. “What is their demand for the type of knowledge/skills a new MBA should have and should bring to their company?”

CEU Assistant Professor Noemi Alexa detailed the curriculum developed by the Center for Integrity in Business and Government, noting that educators use interactive teaching, case studies, and board simulation to explore relevant topics like corruption trends, dawn-raid investigations, competition law, investing in weak government zones, and integrity management in business transactions.

“I strongly believe that by educating current generations for critical thinking in corruption and integrity and making them prepared for unexpected risks will help their businesses be sustainable in the long run,” Alexa said. “The way we're looking at these issues is state of the art. We think we will have an impact on the West. We are going to collaborate with our colleagues at business schools all over the world.”

CEU Associate Professor Davide Torsello presented his research on corporate ethical


CEU Associate Professor Davide Torsello presents his research on corporate ethical compliance departments in Hungary. Image credit: CEU/Daniel Vegel

compliance departments in Hungary. He discovered that compliance officers are becoming increasingly powerful within their respective firms. According to Torsello, one key dilemma that these compliance officers face is the need to strengthen interpersonal trust and informal relations within a company. However, this need is often in conflict with compliance needs for rationalization and impartiality.

"Whistle-blowing mechanisms do not work in Hungary, as in other Eastern European countries, due to a common cultural mindset influenced by the experience of the communist regime, which largely abused whistle-blowing for spying and controlling citizens," Torsello noted.


CEU Business School Advisory Board Member Gregor Medinger discusses integrity in business. Image credit: CEU/Daniel Vegel

CEU Business School Advisory Board Member Gregor Medinger (of Rum Hill Capital) gave the keynote speech, pointing out both good and bad examples of integrity.

“I studied law but, at that time, there was no mention of integrity. There was a question about morals but that was for religion, not for lawyers to talk about,” Medinger said. “The very first time I had a situation with a bribery, we had a client who came to New York and he wanted help placing some of his company's debt in the U.S. As soon as I told him what the fee would be, he said that he knew what the salary of a young lawyer was and that he would set up a bank account for me in Switzerland and then we could talk about a fee.”

Medinger was incensed by the assumption that he was open to bribery, but it was far from the last time he would experience such a situation in his career. However, he witnessed some extraordinary acts of integrity, including a colleague who resigned from his position on the WorldCom board due to the decision to keep information about the Chairman's lavish benefits package a secret from shareholders. Soon afterward, WorldCom collapsed in one of the largest accounting fraud cases in U.S. history that ended with each board member being forced to pay 25 percent of their net worth after a U.S. Securities and Exchange Commission suit.

“There is much to do in this field,” Medinger noted. “There needs to be a mission statement, a code of conduct. I am a great advocate of having the majority of boards in the hands of independent people. Senior managers should sign off annually on the code of conduct and new employees should see it before they begin working and they should be told that it's a living document, and not just a piece of paper.”

Medinger insisted that integrity must come from the top management first, with members of the evening's first panel agreeing wholeheartedly. Paul Heywood, who served as the UK's representative for the EU's recent (and first) report on corruption, reminded the audience that corruption knows no geographical boundaries and that it is difficult to legislate values. In a survey he led of senior UK civil servants, the respondents echoed the “top down” mentality.

“There's a tendency to believe that if we combat corruption, we will generate integrity,” 


Paul Heywood of the University of Nottingham, second from left, served as the UK representative for the EU's recent report on corruption. Image credit: CEU/Daniel Vegel

Heywood said. “There's something in that but these two things are not antonyms. Corruption isn't actual a state of being. A person can be corrupt in certain parts of their life but not others; certain acts make them corrupt. A person can be completely non-corrupt, but not a person of integrity. We need to actively promote integrity. If you don't have trust in the integrity of leadership, you are bound to fail.”

The event was part of the CEU Business School's 25th Anniversary celebration. For the full program, visit http://business.ceu.hu/managing_integrity.