Reducing Corruption in Businesses Through Managerial Training

Description

Although Small and Medium Size Enterprises (SMEs) play a vital role in many emerging markets, their growth is hindered by limited capacity, scale, international competition—and corruption. While most scholars emphasize the role of public institutions and bureaucrats in corrupt transactions, the authors develop a new theory hypothesizing that these challenges are directly correlated with poor management and corruption in the domestic sector.

• First, uncompetitive firms resort to cutting corners as a way to “level the playing field” with their more productive competitors.
• Second, in businesses with weak managerial control, subordinates may commit bribery for their own gain, without the knowledge of top managers.

To test the idea that better training leads to less increased competitiveness and/or less corruption, Duke researchers partnered with National University of Hanoi and Hanoi Banking University faculty to develop two innovative, online training courses in Vietnam. These courses were then made available to managers in the service sector in Vietnam, which now accounts for 42% of its GDP and 35% of the labor force and is on track to be the fastest-growing retail market in Southeast Asia.

Methods and Results

Through a randomized controlled trial (RCT), Small and Medium-sized Enterprises (SMEs) in Vietnam’s restaurant industry were offered courses designed to improve either their productivity or their internal controls. A third group was offered a placebo marketing course. In the Restaurant Management course, managers were taught streamlined practices to cut waste and operate more efficiently. In the Internal Controls course, participants learned how to better monitor operations, reducing the risk that lower-level employees would violate regulations without managerial awareness. In the placebo Marketing course, participants did not learn how to improve their productivity or internal controls. To measure bribery, the researchers used a shielded-response technique, called a list experiment, that provides firms with plausible deniability in their answers.

While the restaurants assigned to the management course did not exhibit higher profit margins than the restaurants in other courses, the impact on bribery was striking. Less than half of the participants in the Restaurant Management course (41.2 percent) and Internal Controls course (43.8 percent) reported paying bribes in the previous month, compared to 75 percent of businesses in the placebo Marketing Course. These differences had startling results on the bottom line. The average cost of bribery in the previous month for participants in the placebo Marketing course was $427 USD, close to three times as much paid by those in the Restaurant Management course ($153 USD) and five times more than participants in the Internal Controls course ($87 USD).

The policy implications of this study are very clear. Practitioners can potentially place a large dent in corruption payments through broadscale Internal Controls training that increases manager awareness of regulations and compliance within their firm. This will insulate them from malicious bribe requests, as regulatory inspectors are less likely to find obvious violations for which they can threaten fines to extract bribes. In Vietnam, the researchers have already taken one large step toward achieving this goal by making courses designed by the Institute for Sustainable Development, which belongs to the National Economics University, Vietnam, openly available on the Vietcourse to all participants.

Team

Members

Edmund Malesky (Duke University); Tuan-Ngoc Phan (Fulbright University)

Sponsors

LASER PULSE program, led by Purdue University and funded by the United States Agency for International Development (USAID)

Related Content

Related Links

• Learning Brief: Using List Experiments to Reveal the True Frequency and Scale of Bribery
• Evidence Brief: Business Management Training Reduces Corruption in Emerging Markets
• Video Brief: Do Better Managers Engage in Less Corruption? A Field Experiment with Vietnam Restaurant Industry
• Do Better Managers Engage in Less Corruption? (Final Report)