The Geometry of Business Ethics

By Patrick Henz

Can a geometric figure and a 1970's theory still be relevant for us today? The book analyzes this question and presents that especially because of its simplicity and clear logic, Donald Cressey's Fraud Triangle has not lost anything from its relevance.

As criminologist he developed the triangle to explain criminal behavior, but as sociologist he did much more, he created a simple model to explain human behavior in groups. Motivation, rationalization and opportunity define which conditions must be given to provoke non-conformal behavior of single participants inside a group. On the other hand the triangle identifies which areas to focus on to prevent possible wrong-doings and implement adequate counter-measures.

Especially in times of business pressures and limited budgets, the book is an ideal starting point to elaborate your own Ethics & Compliance system or adapt an existing one.

• Language: English
• Publisher: aix books
• Release date: Sep 2, 2015
• ISBN: 9781517116453

Patrick Henz

Patrick Henz holds a master degree in business economics of the University Cologne, with focus on marketing, distribution and business- & social-psychology. After working in marketing and new economy in Germany, he went to Mexico City and started in 2007 his Compliance career, first being responsible for implementation and then as Compliance Officer for Mexico, Central America and the Caribbean. In this time he became co-founder of the Mexican Ethics & Compliance Forum, panelist at The Economist Mexico Summit 2015 and publisher & co-author, of the Mexican Ethics and Compliance Manual.

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CONTENTS

ACKNOWLEDGMENTS

The book is based on the Fraud Triangle, a theoretical model presented in 1973 by the US sociologist and criminologist Donald Cressey. Born in 1919, he obtained his bachelor’s degree from Iowa State College in 1943 and seven years later his doctorate from Indiana University. Most of his life he spent in California, where taught sociology at the University of California in Santa Barbara.

Together with Edwin Sutherland he wrote in 1934 Principles of Criminology, what should become a standard text. After his retirement he stayed active in the field of white-collar crime. Beside becoming the president of the Institute for Financial Crime Prevention, he published later the famous theory of the Fraud Triangle.

1 Introduction

Welcome to the Geometry of Compliance and thanks for taking your time to read this! This book is not a Compliance manual or how-to-do document, but shows Compliance in relation to business- & social-psychology and further the sustainability concept. Doing so, it is made for the advanced practitioner and includes the following:

The Cost of Information

The Fraud Triangle

1.1 But first a step back, why we should care about business ethics?

An interesting quote by US author and philosopher Ayn Rand, taken from her masterpiece, the novella Atlas Shrugged:

When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.[1]

Atlas Shrugged plays in a near future post-recession United States, ruled by a kind of socialistic government, including cartels and corruption. Result is further negative development of the country. The two main characters are business leaders of railroad and steel companies and start to fight the system.

The novella is based on Amy’s philosophy of objectivism and published back in 1957. Besides that the book was controversial discussed by critics, it reached fame and even got movie-adaptions. Nevertheless of its age, Atlas Shrugged and the mentioned quote are still alarming actual and relevant.

So why corrupt societies are doomed or in other words, what is the cost of corruption?

For the company:

Corruption (as part of missing legal certainty) is an additional cost factor. The tasks of the employees are not just limited in elaborating the best technical solutions, finding an adequate pricing, but also have to deal with local bureaucracyand connections. These costs are included in the decision making process, in which countries a company wants to expand and invest. As corruption destroys legal certainty, it opens the casino risk, as there are no guarantees that with the bribe you win the project and there stays the risk of getting caught.

Financial incentives may lure the more talented and better educated to engage in rent seeking rather than in productive work, with adverse consequence for the country’s growth rate.[2]

Corruption reduces the efficiency of the public sector and money gets lost on the way: Due to the missing effectiveness in its processes, the country on the one hand loses the possibility of receiving the totality of the taxes; and on the hand, the costs of public investments increase.

With given corrupt structures, a public buyer will look for its best personal benefit (including the possibility of receiving a bribe), which is normally not compatible with the best public benefit. Further consequence: "Corruption may distort the composition of government expenditure. Corruption may tempt government officials to choose government expenditures less on the basis of public welfare than the opportunity they provide for extorting