Don't let that sink in

Rethinking our approach to rooting out organizational corruption.

It's tempting to think of corruption as the fault of individual bad actors. A few rotten apples spoiling the bunch would make for an easy solution-just remove the troublemakers and an end to corruption will follow.

But according to James Hazy, EdD, professor of management in the Robert B. Willumstad School of Business, the problem is not that simple. His latest co-authored paper, "Value Sinks: A Process Theory of Corruption Risk During Complex Organizing," published in Nonlinear Dynamics, Psychology, and Life Sciences (July 2023),¹ is a detailed application of complexity theory to the tangled maze of organizational corruption. While most studies of corruption typically scrutinize agency and ethics at the individual level, the paper presents a "process theory that describes how corruption risk emerges from conditions of uncertainty that are intrinsic in social systems and social interactions."

Complexity science, which forms the basis for much of Dr. Hazy's work in business management, examines the properties of physical systems and human systems, including human social networks. Applying it to corruption led Dr. Hazy to develop the concept of a "value sink." Inspired by the physics term "heat sink" into which excess heat is dissipated from a system, a "value sink" refers to the idea of a value being captured by an actor or actors within a system, then removed permanently so that it cannot continue to benefit the system as a whole.

A system is at the greatest risk for corruption when it contains unstable dynamics, Dr. Hazy and his co-authors maintain. These dynamics are likely to emerge during a time of large- or small-scale disruption, called "disequilibrium conditions," in the paper's terms. Under disequilibrium, "agents in a system [can] take actions that exploit … conditions of uncertainty and ethical ambiguity," the authors write. "Further, systemic corruption emerges when agent interactions are amplified locally in ways that create a hidden value sink, which we define as a structure that extracts, or 'drains,' resources from the system for the exclusive use of certain agents." Such conditions can also prevent individuals from recognizing when they are contributing to corruption. "You sometimes don't really realize when you're in a value sink because you think you're helping the organization, but you're really getting sucked into a value sink," Dr. Hazy said.

Value sinks aren't always a net-negative. In fact, as Dr. Hazy explains, they are the same organizational property that leads to the development of new innovative technologies and new ways of making art. But, in the context of corruption, these value sinks remove value from an organization solely for the benefit of an individual or set of individuals, with no accompanying positive benefit for the system or the world at large. This constitutes ethical harm.

Dr. Hazy's paper aims to identify the risks for value sinks in order to help organizations avert potential harm. He and his co-authors lay out 16 different elements of corruption risk, or indicators that value extraction might be occurring somewhere in an organization. Arranged on two axes, organizational scale and risk type, the elements cover the bases of the stages of corruption up and down the level of organizing, from the individual, early "Local Opportunities to 'Defect'" to the late-stage, global "Institutions With Embedded, Dynamically Stable Value Sinks" in the broader economy.

Now, Dr. Hazy is organizing an upcoming symposium on corruption at the Academy of Management's Annual Meeting, a global gathering that is open to representatives from business academia and international business and consulting organizations like McKinsey & Company. He hopes his work on value sinks will empower individuals within these systems to not only recognize corruption risks, but work to actively counter them. Despite the resistance these hard science concepts may face from the soft skills-centric business world, he believes they are a vital component of successful organizational management. After all, "When corrupt acts are occurring, how do we move forward?" Complexity science can help answer that question.

Biography

James Hazy, EdD

James Hazy, EdD, professor of management, focuses his teaching both on how leadership creates value for organizational stakeholders and on helping students appreciate the importance of the human aspects of business value creation. His research interests range from organizational leadership and leadership effectiveness metrics to computational organization theory, organizational capabilities and corruption. Dr. Hazy is the founder and CEO of Leadership Science, LLC, a management consulting firm in human resource development.

^{¹Hazy, J., Lichtenstein, B., Demetis, D., Backstrom, T. & Dooley, K. (2023). "Value Sinks: A Process Theory of Corruption Risk During Complex Organizing." Nonlinear Dynamics, Psychology, and Life Sciences, 27, 319-350.}