Demonstrates strong or adequate knowledge of the materials; correctly represents knowledge from the readings and sources.

159

the three legged system of organisational integrity

Gyula PuLAya,* a) Miskolc University, Hungary and State Audit Office of Hungary

Please cite this article as: Article History:

Pulay, G., 2017. The three legged system of organisational integrity. Review of Economic Studies and Research Virgil Madgearu, 10(2), pp.159-175. doi: 10.24193/RvM.2017.10.14.

Received: 30 August 2017 Accepted: 30 October 2017

Abstract: Public organisation with mature integrity systems are resistant to the misconduct of their own employees, such as corruption and other misuses of public property. This article argues that legality, legitimacy and legacy are the three legs of a solid system of organisational integrity. Legality since compliance with the legal rules is the precondition of integrity. Organisations moving from legality to legitimacy build their inner regulations on the values and basic principle of the laws and not on their specific provisions only. Organisations with integrity try to leave legacy to their successors, valuable fortune to the future generation, they try to fulfil their mission and help their employees to realize their vocation. The endeavour to go beyond legality to legitimacy and create legacy helps organisations to exceed the level of compliance and reach the level of integrity. Key words: management control; corruption prevention; integrity JEL Classification: H830; K4; K420

© 2017 Alma Mater Publishing House. All rights reserved.

* Corresponding author. E-mail address: [email protected].

160

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

Corruption is a serious problem in each of the Central and Eastern European countries. Therefore these countries have to find effective tools for fighting against corruption. The traditional way for doing so is the reinforcement of the authorities responsible for the fight. It covers several measures, e.g. capacity building of the police departments and prosecutor offices, tightening the punishment of corruption offences and increasing the penalties of corruption related crimes. One of the outstanding example of this approach was the establishment of the National Anticorruption Prosecutor’s Office in Romania in 2001.

Another approach tries to prevent corruption by encouraging integrity at all level of the society. This approach was followed by the State Audit Office of Hungary (SAO) when it launched its Integrity Project in 2009. ‘Mapping Corruption Risks – Promotion of an Integrity-Based Culture of Public Administration’ was the title of the project.

The aim of the article is to describe the theoretical background of a sound integrity management system which is an effective tool of corruption prevention. The first chapter of the article compares the traditional and the integrity- oriented approach of the fight against corruption, highlighting the advantages of the integrity approach. The second chapter briefly expounds Ouchi’s famous theory on the three types of controls, arguing that clan-control is the antecedent of the integrity-oriented control. The third chapter explicate the mechanism by which organisational culture influences the behaviour of the members of the organisation. The fourth chapter explains the relationship between the culture of compliance and the culture of integrity. The fifth chapter argues that a sound integrity management system should be based on three basic principles: on legality, legitimacy and legacy.

1. organisational integrity as a tool of preventing corruption The word ‘integrity’ originates from the Latin expression in-tangere, which

means “intact” or “untouched”. In other words, the term designates someone or something unblemished, inviolate and beyond reproach; in addition, it alludes to virtue, incorruptibility and the condition of purity. According to another view the root of integrity is the Latin “integer” adjective, which means “whole” or “entire”. The concept of integrity is used to describe both people and organisations.

The term “integrity” as a basic characteristic of an ethical personality has been used by the human sciences for ages. Integrity usually refers to a quality of a person’s character, and any person said to be acting with integrity is usually being honest and trustworthy. Individuals with strong integrity do what they think is right regardless of the consequences attached to their decisions or is perhaps making a personal sacrifice for the greater good. Integrity is the opposite of lying,

161

Pulay, The Three Legged System of Organisational Integrity

deceiving others for personal gain. Integrity means doing the right thing at all times and in all circumstances, whether or not anyone is watching. It takes having the courage to do the right thing, no matter what the consequences will be.

Organisational integrity means that the operation of an organisation is in adherence to the rules applicable to it and to the values and principles defined by or for it. In the sense of organisational management, integrity means that an organisation has a positive, sound set of values that are in line with social expectations and it works in accordance with these values. The latter presupposes that the employees also identify themselves with the organisation’s values and act accordingly. In this sense integrity is a synonym for correct (compliant, ethical) employee behaviour. Consequently, integrity is the exact opposite of incorrect employee behaviour, like fraud, corruption and any kind of abuse of official power.

This is the point where integrity and the fight against corruption come together since the higher level of integrity an organisation has, the more resistant it is to corruption. Consequently, the strengthening of an organisation’s integrity is an important tool for preventing and mitigating risks of corruption.

Table 1 summarises the differences between the traditional approach to the fight against corruption – which is aimed at detecting specific cases of corruption by the reinforcement of the authorities – and the approach that focuses on organisational integrity.

The first important difference – reflected by the first two rows of Table 1 – is that the integrity-oriented approach is aimed at the detection of corruption risks and not the corruption itself, and tries to prevent corruption by the efficient management of the identified corruption risks.

The second important difference is reflected by the third and fourth rows of Table 1. They reveal a new theatre of the war against corruption, it is the organisation. The fight against corruption is shifted from the national level to the level of individual public organisations. This can improve the effectiveness of the fight significantly, since it is not only a single authority that combats a multitude of unknown perpetrators but thousands of public institutions take up the fight against corruption. In this approach, the leaders of the many thousands of public institutions are expected to develop a sound system of integrity controls in order to strengthen the organisations’ resilience to corruption.

Reflected by the fifth row of Table 1 the integrity oriented approach has its own weapons for fighting against corruption. They are different from the weaponry of the traditional approach. Its armour contains the integrity controls. They are means of managing integrity risks, including policies, procedures, guidelines, practices or organizational structures, which can be of an administrative, technical, management, or legal nature.

162

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

Table 1. Main features of the traditional and the integrity-oriented approach to the fight against corruption

Features Traditional approach Integrity-oriented approach

Subject of the fight Corruption itself Risk of corruption

Purpose of the fight Disclosure of corruption Prevention of corruption

Scene of the fight The entire country The organisation

Main warriors of the fight Public authorities Leaders of the organisation

Armor of the fight Legislation, investigation, retaliation

Integrity controls

Results of the fight Disclosure of corruption, sanctions

Strengthening the organisation’s ability to resist corruption

Source: Own representation after Pulay, 2014, p. 140.

The last row of Table 1 makes clear why integrity can be an effective safeguard against corruption. The traditional approach deals with indi- vidual cases and ties to disclosure corruption related crimes one by one. The integrity oriented approach tries to make the whole organisation resistant against many risks of corruption at all levels of the organisation. This article describes the ways and means by organisational integrity effectively defend the organisation against the threats of corruption.

2. From clan-control to the culture of integrity

The term clan-control was introduced by William G. Ouchi in his famous article “Markets, Bureaucracies and Clans” (Ouchi, 1980). Market, bureaucracy and clan are the three modes of controls distinguished by Ouchi. He argued that the market control – which is the basic control mechanisms in a market economy – often fails, due to the fact that the market transactions are too complex. They involve long-term obligations. Theoretically contingent claim contracts can deal with future obligations, but when future is either complex or uncertain or both then it is impossible to specify a contract which takes into consideration the future options completely. This failure of the market control cries for bureaucratic solutions when contractual solutions are replaced by rules.

Ouchi underlines two principal advantages of the bureautic control compared to the market control.

First, bureautic control is applied between the employer and the employees. In the employment relationship employees in exchange of receiving wages

163

Pulay, The Three Legged System of Organisational Integrity

accept the employer’s right to direct their daily activities (within the frame of the employment contract), and closely monitor it. In the employment contract the duties of the employees and the rights of the employer are regulated incompletely, giving room for the employer to regulate the employees’ activities according to circumstances raised after signing the contract. Thus the problem of dealing with future uncertainties is more or less solved.

The second principal advantage is even more important from the viewpoint of this article. Organisations can create trust among their members more easily than market can between the parties of a market transaction. Employees of an organisation assume some commonality of purpose, because they learn that their rewards are somehow depending on the performance of the organisation: in long-the long run good performance of the organisation yields for them also. In bureaucratic organisation technical expertise is an important element of the commonality. Bureaucracies appreciate professional standards and behaviour, and professionals meeting these standards are rewarded and promoted by the bureautic organisations. High levels of professionalism becomes a value shared by the members of the organisation and the organisation itself and creates a drive for excellence.

In spite of the advantages of the bureautic control compared to market control, it has its own boundaries. Bureautic control uses rules, but rules are relatively weak devices. Any specific problem needs a specific rule. The bureautic control of complex organisation or processes needs enormous number of rules without covering all possible contingencies. Therefore in a quickly changing environment bureautic control fails to respond properly to the changes.

The failure of both the market and the bureautic controls turned Ouchi’s attention to a third mode of control. In the 1970s he noticed modern industrial organisations applying social mechanisms which reduced the differences between organisational and individual goals and created a strong sense of community. These organisations were operating typically in technologically advanced industries, where teamwork was common, technologies changed often and therefore individual performance was highly difficult to measure. These were the typical circumstances where both market and bureautic control fail. The social mechanism to these modern industrial organisations reminded Ouchi to the control mechanism of the preindustrial craft organisations where the members of the organisation previously served an apprenticeship during which they were socialized into accepting the objectives of the craft organisation. Based on this experience Ouchi discerned a third mode of control and called it clan- control. This name originates form Durkheim who referred a clan as the case of organic solidarity contrasted to the contractual relations (on which market and bureautic control are based). The solidarity steams from the necessary dependents upon one another which resulted in common goals and cooperation.

164

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

The feeling of community is the basis of informal organisations but essential to the smooth operation of every formal organisation as well. Common goals and the feeling of community are effective elements of any control mechanism aimed at meeting of organisational goals and avoiding behaviour destructing them.

Ouchi argued that clan-control could be effective in an environment where market control and bureautic control fail. Clan control relies upon creating goal congruence therefore it can work among complex circumstances where performance is excessively ambiguous.

Ouchi summarized two main characteristics of the three control modes in a table (see Table 2).

Normative requirements refer to the basic social agreements that all members of the transaction network must share in order to the efficient functioning of the network. Reciprocity is a normative requirement for all the three control modes. It reflects the mutual interest of the parties of the transaction which is the basic precondition of voluntary transactions. Legitimate authority is critical both for bureautic and clan-control. In the case of bureautic control it permits the employer to specify the work assignments of the employees and closely monitor their performance. In the case of clan-control legitimate authority is usually part of the tradition, and obedience to the leaders of the clan is strongly encouraged by the tradition.

Table 2. An organisational failures framework

Mode of control Normative requirements Informational requirements

Market Reciprocity Prices

Bureaucracy Reciprocity Legitimate authority

Rules

Clan Reciprocity Legitimate authority Common values and beliefs

Traditions

Source: Ouchi, 1980, p.137.

For market control price-information is needed. Ouchi underlines that very difficult to arrive at correct prices. Rules are relatively crude information devices. There are standards behind the rules but they indicate the value of an output approximately only. Employees perceive them as equitable only as long as they believe that they contain a reasonable amount of performance information. The compliance with rules does not reflect the value of the performance when tasks become unique, integrated or ambiguous for other reasons.

From the performance evaluation perspective tradition is the least precise information prerequisite, since they are formulated in a general way. On the other

165

Pulay, The Three Legged System of Organisational Integrity

hand, the set of traditions in a formal organisation may produce a unified, although implicit philosophy how that organisation should work. This philosophy is learnt by the employees of the organisation through a long learning (socialisation) process after which they can deduct from it a rule which compasses their appropriate decision-making in any specific cases. It means that long socialisation is a precondition of the efficiency of the clan-control.

Taking into consideration the many hindrances of meeting the informational requirements of the proper functioning of the three control modes, it is not surprising that Ouchi was pessimistic about the efficiency of the future control modes. He stated that the “degree of uncertainty and opportunism that characterize American society may be such that no mechanism of control ever function very well” (Ouchi, 1980, p.140). Since the publication of his article three and a half decades have past, during which management sciences developed a lot. They responded the challenges of creating more efficient control mechanisms. Multi-dimension performance management systems were introduced to control the performance of complex organisations as a further development of the market control relying on price-information only. Compliance systems were introduced as new and comprehensive forms of the bureaucratic control. The conscious building of organisational culture tried to replace the traditions prerequisites of the clan-control and creating a control system which is based on the feeling of community and the prevailing values shared by the leaders and the employees of the organisation. Each of the three developments are interesting and instructive. This article focuses on the third one and tries to present the development process leading from clan-control to a control system based on the culture of organisational integrity.

3. From clan-control to organisational culture

Traditions can be inherited only by organisations being operated for a long time. The number of organisations characterised by long tradition is limited. Does it mean that the relevance of the clan-control is limited also? Not necessarily. According to Ouchi the essence of clan-control is a unified, although implicit philosophy how that organisation should work, and after a long learning process employees can deduct from it a rule which compasses their appropriate decision-making in any specific cases. Ouchi emphasizes the importance of the long socialisation process during which employees understand traditions and collect experience on its usefulness. We have to raise the questions whether tradition is the only means for creating a unified organisational philosophy and socialisation is the only way for learning. Management science answered to these questions by definite “no”. It argued that top managers can develop an order of values and principles which may become prevailing rules through

166

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

the process of internalisation. It starts with learning what the norms are, and then understanding why they are of value or why they make sense, until finally they accept the norm as their own viewpoint. Internalised norms are said to be part of an individual’s personality and may be exhibited by one’s moral actions. Internalisation could be the result of socialisation but it could be speeded up by formal training and explicit education and the involvement of employees in the creation of organisation’s value order and the related documents (e.g. mission statement, code of ethics).

The conscious creation of the organisational philosophy does not need organic relationship among the members of the organisation characteristic to the clan-control since the members of the organisation are formed into a community by the goals, values and principles shared by all of them. Therefore clan-control is replaced by something else, namely by organisational culture. What is an organisational culture?

Answering to this question we can start with the phenomenon that behaviour of the employees of an organisation is influenced by the organisation itself. Not the formal rules applied by the organisation effect employees’ behaviour only, but the atmosphere, the relationship among the employees, the prevailing management style and many other informal elements of organisational life have an impact on employees’ daily decision making. Sciences try to grasp this phenomenon by the notion of organisational culture. It is an abstract concept, and there are several definitions of it. We follow the concept of Edgar Schein. According to his definition organisational culture “is a pattern of basic assumptions that a given group has invented, or developed in learning to cope with the problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and therefore to be taught to new members as the correct way to perceive, think and feel in relation to those problems” (Schein, 1984, p.3). Schein divided organizational culture into three different levels:

y artefacts and creations (symbols), y (espoused) values, y basic (underlying) assumptions.

(In brackets you can see the supplements to the original terms added by the author in his later publications.)

Artefacts and symbols mark the surface of the organization. They are the visible elements such as logos, architecture, structure, processes or even corporate clothing. They carry important, but sometimes not decipherable messages to the employees and to external parties also.

The second level concerns standards, values and rules of conduct, the way by which the organization express strategies, objectives and philosophies and made them public. Problems could arise when values publicized by the organisation

167

Pulay, The Three Legged System of Organisational Integrity

are not shared by the managers and employees of the organisation. Therefore Schein put the indicative “espoused” in front of the noun “value”. It that case values represent a greater level of awareness. They are apt to reasoning – in verbal explanation – the behaviour, but usually are not strong enough to really govern the specific decision making of the members of the organisation.

In order to really understand how culture does work we have to delve into the underlying assumptions level – emphasizes Schein – since they determine how group members perceive, think and feel. The mechanism of action is the following. Employees try to solve problems by acting in line with the espoused values of the organisation. If actions begin to solve the problem and success is repeated several times then the value is gradually transformed into an underlying assumption that problems could be solved by following the value. As the assumption is taken for granted they become powerful means for controlling behaviour, hence they are less debatable and confrontable than espoused values. Schein argues that as certain motivational and cognitive processes are repeated and continue to work, they become unconscious. Therefore the basic underlying assumptions are deeply embedded in the organizational culture and are experienced as self-evident and unconscious behaviour. Assumptions become patterned into “cultural paradigms”, which tie together the basic assumptions. The cultural paradigm is a set of interrelated assumptions that form a relatively coherent pattern. This pattern is the core of organisational culture which has a decisive role in shaping the behaviour of the employees of the organisation, therefore culture fulfils many control functions.

Table 3 summarizes the basic similarities and differences between clan- control and control exercised by creation and reinforcement of organisational culture.

Table 3. Comparison between clan-control and control exercised by organisational culture

Mode of control Normative requirements

Informational requirements

Personal requirements

Clan

Reciprocity, Legitimate authority, Common values and beliefs

Traditions Employees, who went through a long socialisation process

Organisational culture

Reciprocity, Legitimate authority, Espoused values and underlying assumptions

Cultural paradigm Employees, who went through an internalisation process

Source: Own representation.

168

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

Clan-control and the control exercised by organisational culture are very similar to each other as it is reflected by Table 3. However there are two important differences as well. First, contrary to the traditions which are developed by natural processes, cultural paradigm can be created artificially also. Second, personal requirements of the clan control could be met by a long process of socialisation whilst internalisation is expected to be a shorter process. There are plenty of management manuals on how to create an organisational culture containing good advices for shortening of the internalisation process by formal training and many other means. This article does not want to challenge the suggested methods but would like to underline that the creation of culture needs a lot of time.

4. The culture of integrity

The reinvention of organisational culture has led to the development of different kinds of cultures. We can speak about the culture of quality, the culture of excellence, the culture of diversity and the culture of integrity. The distinctive sign of the different cultures are the prevailing values of the cultures: each culture is named after the value with the highest priority in the organisational culture. In the organisational culture of integrity the central value is integrity. It means that integrity is a decisive aspect of the character of the organisation and organisation behaves ethically even when this would not be in its own (short term) interest. An organisation can act through its members only, therefore each of the leaders and the employees of the organisation have to follow the ethical values of the organisation in their own decision making. Meeting of this requirement is a great challenge. There are two approaches to get members of the organisation act according to ethical values of the organisation. The first is the compliance approach, the second is integrity.

The compliance approach relies on rules. It uses formal and detailed rules and procedures, which try to regulate in every situation how to behave ethically. Typical instruments of this approach include legislation, strict behavioural codes, extensive control mechanisms and control institutions with extensive powers. They are the so called hard controls, applied for directly influence employees’ behaviour.

The integrity approach relies on self-control exercised by each individual. Self-control mechanism consists of two components: moral judgment capacity and moral character. Moral judgment capacity can be strengthened by learning and understanding the values, and developing the skills in ethical decision making needed to apply those values in the daily practice. Ethical decisions making skills can be improved by ambitious code of ethics, workshops on ethical dilemmas, interactive trainings and several other means. Moral character is the instinctive

169

Pulay, The Three Legged System of Organisational Integrity

motivation of the person to act upon ethical values, and aptitude, fortitude and hardihood to act upon them resisting to tempting offers. Organisations pursuing integrity try to select employees with solid morality. Because of its instinctive nature moral character is very difficult but not impossible to change. Organisational culture might have a very important role in strengthening its members’ moral character. Organisations creating a feeling of community, empowering and respecting their employees motivate them to voluntarily adopt organisation’s values as their own. values would be followed by the employees because they belong to a community which enhances their self-esteem. The respect increases self-respect. If you are respected by the community and by your leader for being competent, true, trustworthy and honest, then you try to be competent, true, trustworthy and honest. The special control devices for integrity management are the so called soft controls, aimed at influencing employees’ motivation, loyalty, integrity, inspiration, standards and values. They influence employees’ behaviour indirectly through their convictions and attitudes, as you can see in Figure 1.

Figure 1. The effect of hard and soft controls on employees’ behaviour

1

Hard controls Employees’ Behaviour

Values Attitudes Aspirations Endeavours

Soft controls

Source: Own representation.

There are many reasons why one might behave ethically. For example, there might be a threat of punishment, or a promise of a reward, to keep one in line. But following one’s self-interest in this way, even if it results in ethical behaviour, is not integrity. Integrity is an aspect of character that leads the person to develop deeply-held ethical commitments and to act on them consistently. People with integrity will, therefore, tend to behave ethically not only when it is in their own interest, narrowly construed, to do so, but also when it is not. Empirical studies (Tyler et al., 2008) show that an organizational culture that encourages ethical conduct usually not emphasizing the fear for punishment but rather a focus on fairness. It is the commitment to values which is the key to explaining and influencing employees’ behaviour and which motivate them to voluntarily adopt organisation’s values as their own.

170

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

5. Legality, legitimacy and legacy Compliance approach and integrity approach do not constitute a simple

dichotomy. They are not only opposite to but supplements of each other. Ethical values are appreciated by the compliance approach as well as rules are important tools for reaching integrity. The compliance with the basic rules is a precondition of integrity. But too many and detailed rules may destroy trust. Meticulous regulations might be considered by employees as the sign of mistrust and the lack of respect which may decrease their enthusiasm for following the values their employer. The challenge is to create an integrity management system which secures compliance with the basic rules but does not undermine the culture of integrity. The article tries to describe one of the possible solutions for creating an integrity management system meeting both requirements.

The basic idea of the solution comes from Peter verhezen’s study (verhezen, 2010). He wrote in this study that organisations “do not need to move from the culture of compliance (to culture of integrity), but to transcend, to move beyond, to incorporate compliance into a higher dialectic level of understanding where there does not necessarily need to be conflict between compliance and integrity. The tension between them can be healthy and can force deliberate thinking and better decision making. Limitations should not be felt as negative constrains, reducing freedom, but rather as an increased possibility for freedom and leaving behind some legacy that is engrained in the legitimacy of their excellence” (verhezen, 2010. p.21).

Figure 2. Mode of action of legality

1

Laws

Hard controls

Behaviour of the employees

Source: Own representation.

171

Pulay, The Three Legged System of Organisational Integrity

The main concern of the compliance approach is legality, which is the state of being in accordance with the obligations imposed by the law. Organisations pursuing compliance approach try to reach and sustain the state of legality by the introduction of hard controls as it is described in Figure 2.

If hard controls work well employees of the organisation act in line with the laws in every situation regulated by hard controls, but compliance with the laws are not insured when there isn’t any hard control to be applied in the given situation. In these situations compliance depends on the employee’s decisions made without specific controls. It makes clear that there is a need for soft controls in order to influence employees’ behaviour in situations not covered by hard controls.

Soft controls have to be based on values. Therefore organisations must be shifted from the concept of legality to legitimacy. Legitimacy is the conformity to the law, the quality of being legal. This definition is very similar to the notion of legality. But legitimacy has another meaning as well, it is the quality of being reasonable and acceptable. Legitimacy means that a law is followed because its rules are reasonable and acceptable and not because of its enforcement mechanism only. Why are they acceptable? Because the intentions and values on which the law is based are in line with the basic expectations of the society. Organisations moving from legality to legitimacy build their inner regulations on the values and basic principles of the laws and not on their specific provisions only. It is described in Figure 3.

Figure 3. Mode of action of legitimacy

1

Laws

Hard controls

Behaviour of the employees

Values, basic principles of the laws

Soft controls

Source: Own representation.

172

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

One can see from Figure 3 that tools serving legitimacy embrace devices ensuring legality but they contain new elements as well. On the one hand there are additional hard controls since pursuing the values and principles of the law might require additional inner rules. On the other hand legitimacy gives opportunity for creating soft controls based on the values and principles of the specific laws. For example, a law might emphasize the importance of transparency. Then an organisation going to be legitimate should introduce both hard and soft controls in order to strengthen the transparency of their operations.

By introducing soft controls organisations took the first step into the direction of integrity. This step is rather small hence these soft controls are based on the values of the laws and not on the own value order of the organisation. Integrity has to come from inside and not from outside. Organisations should set up their own value order as a next step to integrity. The value order of an organisation is not independent from the environment of the organisations. It is especially true for the public organisations established to serve public interest on given fields and in specific ways. For profit and non-governmental organisations have to take into consideration stakeholder’s expectations and legal requirements also. Certain values and principles are deeply embedded in traditions which have significant effects on the development of the value order. The professional bodies and other employee groups should have a say in this process as well. The multidirectional process is drawn is Figure 4.

Figure 4. Integrity management system based on legality, legitimacy and legacy

1

Own values, principles of the organisation

Soft controls

Laws

Hard controls

Integrity management system Soft controls

Values, principles of the laws

Behaviour

Source: Own representation.

173

Pulay, The Three Legged System of Organisational Integrity

In order to give life to value order organisations should introduce soft controls to strengthen their employees’ commitments to the organisational values. Hard controls may play a role also in ensuring that basic principles are respected at all levels of the organisation. The hard and soft controls together constitute the integrity management system of the organisation, as it is shown in Figure 4. Integrity management system influences employees’ behaviour in a more effective and better targeted way than a bunch of hard controls or a set of hard and soft controls might influence it.

The setting up of the value order is a sophisticated process resulted in several documents, such as vision and mission statements, strategies defining the prevalent values of the organisation, ethical principles and code of conducts. Certain symbols and artefacts are designed also in order to visualize basic values and aspirations. By these documents leaders and employees of the organisation endeavour to answer the questions:” Who we are and what are we for?” In other words: “What is the legacy inherited from predecessors, and what is the legacy to be left to successors or in a broader sense to our stakeholders, to the future generations, to the society as a whole?”

Figure 5. The three legged stool of sound organisational integrity

Source: Own representation.

Clan-control is based on traditions. Integrity is based on legacy. There is difference between tradition and legacy. It is important to know where we have been, and honour where we have come from, but legacy is more important than tradition. Where we are going is more important that where we have been.

174

Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2)

Tradition is tied to the past; based on the way things used to be. Legacy is tied to the future. Legacy is building upon the way things could be, while building for those that have yet to be reached. Legacy says that our best days are ahead. Tradition is a foundation. Legacy is a house. Ancient organisations could build on their traditions and use clan-control. New organisation have to build on the new foundation of their newly developed organisational culture. Organisations without inheriting tradition can build houses also and leave them behind as a legacy for future generations. Legacy is the main motivator of creating the culture of integrity. Legality, legitimacy and legacy are the three legs of an integrity system sound as a three legged stool (see Figure 5).

The three legged integrity stool (legality, legitimacy and legacy) is not a wordplay with the first three letters of the three phrases. They are indispensable and complimentary elements of integrity. The three legged stool is very stable. you can stand at each point of the stool without losing balance. Continuing the metaphor we may conclude that several mixtures of legality, legitimacy and legacy may lead to solid organisational integrity. Every organisation should find the best mixture serving its integrity in the optimal way.

6. Conclusions The results of the article can be utilised by every public organisation since

they must fight against corruption and other misuses of public property. One of the most important scene of corruption prevention is the (public) organisation where corruption may take place.

Public organisations can enhance their resistance against corruption by creating the culture of integrity, hence organisational culture effectively influences the decision of the member of the organisation. Commitment to values is the key to explaining employees’ behaviour and which motivate them to voluntarily adopt organisation’s values as their own.

Legality, which is compliance with the basic rules is a precondition of integrity. But organisations searching for integrity must be shifted from the concept of legality to legitimacy, and build their inner regulations on the values of the laws and not on their specific provisions only.

As a next step organisations should set up their own value order based on the legacy inherited from predecessors, and on the legacy to be left to successors or in a broader sense to the stakeholders of the organisation, to the future generations, to the society as a whole. Legacy is the main motivator of creating the culture of integrity.

Public organisations can develop a sound integrity management system by building it on the principles of legality, legitimacy and legacy.

175

Pulay, The Three Legged System of Organisational Integrity

References 1. Lander, N. and Nahon, D., 2006. The integrity model of existential psychotherapy

in working with the ‘Difficult Patient’. New york: Routledge. 2. Maesschalck, J., 2004. Approaches to ethics management in the public sector: a

proposed extension of the compliancy-integrity continuum. Public Integrity, 7(1), pp.21-41.

3. Menzel, D.C., 2012. Ethics management for public administrators: leading and building organisations of integrity. New york: Routledge.

4. Ouchi, W.G., 1980. Markets, bureaucracies and clans. Administrative Science Quarterly, 25(1), pp.129-141.

5. Paine, L.S., 1994. Managing for organizational integrity. Harvard Business Review March-April, 72(2), pp.106-118.

6. Pulay, G., 2014. Preventing corruption by strengthening organisational inetgrity, Public Finance Quarterly, 59(2), pp. 151-166.

7. Schein, E.H., 1984. Coming to a new awareness of organizational culture. Sloan Management Review, 25(2), pp.3-16.

8. Tyler, T., Dienhart, J. and Thomas, T., 2008. The ethical commitment to compliance: building value-based cultures. California Management Review, 50(2), pp. 31-51.

9. verhezen, P., 2007. The (ir)relevance of integrity in organisations? A corporate governance perspective. In World Ethics Forum Conference Proceedings. Available at: https://www.researchgate.net/profile/Peter_verhezen/publication/264855438_ The_irrelevance_of_Accountability_Responsibility_in_Organizations_A_ c o r p o r a t e _ g o v e r n a n c e _ p e r s p e c t i v e / l i n k s / 5 4 1 2 f c 5 5 0 c f 2 f a 8 7 8 a d 3 c d 6 c / The-irrelevance-of-Accountability-Responsibility-in-Organizations-A-corporate- governance-perspective.pdf.

10. verhezen, P., 2010. Giving voice in a Culture of Silence – From a culture of compliance to a culture of integrity. Journal of Business Ethics, 96(2), pp 187-206.

Reproduced with permission of copyright owner. Further reproduction prohibited without permission.