Corporate Governance

Article Type: Guest editorial From: Cross Cultural Management, Volume 16, Issue 3About the Guest Editors
Chad O. Albrecht
Assistant Professor of Management at the Huntsman School of Business at Utah State University. Chad graduated with his PhD from ESADE Business School in Barcelona, Spain. Chad??™s research focuses on international fraud and corruption from a humanistic perspective. He has published in many journals and authored several books on fraud and corruption.
Conan C. Albrechtisan
Associate Professor of Information Systems at the Marriott School of Management at Brigham Young University.Conan researches computer-aided fraud detection and groupware. He is the author of the Pical oopen-source fraud detection software, the foundation of the Detectlet-oriented detection methodology. He has published in Communications of the ACM, Decision Support Systems, IEEE Transactions on Systems, Man, and Cybernetics, and other publications.IntroductionIt is a pleasure to introduce the reader to this special issue of Cross Cultural Management: An International Journal, on international ethics, fraud, and corruption. In recent years, scandals involving Bernard Madoff (USA), Sir Allen Stanford (USA), Enron (USA), WorldCom (USA), HealthSouth (USA), Parmalat (Italy), Harris Scarfe and HIH (Australia), SK Global (Korea), YGX (China), Livedoor Co. (Japan), Royal Ahold (The Netherlands), Vivendi (France) and most recently Satyam (India) (Albrecht et al., 2008b) have created a loss of confidence in the integrity of businesses throughout the world (Carson, 2003). These scandals have even caused the accounting profession in many countries to re-evaluate and re-establish basic accounting procedures (Apostolon and Crumbley, 2005).
In addition to these various scandals, many organizations in countries throughout the world are forced to deal with bribery, corruption, and dishonesty on a daily basis. The importance of understanding the cultural roots and perceptions of unethical behavior, fraud, and corruption is paramount in today??™s business world. As a result, the purpose of this special issue is to bring attention to many of the ethical issues that individuals, organizations, and even society must face as they engage in international business and explore new ways of understanding the cultural implications of the constructs of fraud and corruption.
In the last decade, the dot-com crash and the recent financial downturn have put significant pressure on companies and individuals to engage in fraudulent activities to display a false sense of profitability to investors, stockholders, and the public (Albrecht et al., 2008a). For example, the Bernard Madoff investment scam caused estimated losses of $65 billion for investors (Bray, 2009) and shocked many individuals because Mr Madoff held positions of authority and leadership. At its core, this fraud was a classic Ponzi scheme, yet it was one of the largest (if not the largest) investor fraud ever committed by a single individual. This fraud lasted for many years, and it involved thousands of investors.
The Satyam fraud in India provides another example of significant recent fraud. It has often been called the ???Enron of India??? (Christy, 2009) because of its large scope and worldwide consequence. Satyam was one of the world??™s leading technology and software consulting companies, with offices in nearly 75 countries and 40,000 employees (even this number was inflated by 30 percent). A large number of the Fortune 500 firms used Satyam for various software implementation projects. In early 2009 it was revealed that Satyam had overstated revenues by 76 percent and income by 97 percent (Times of India, 2009). Nearly all of the reported income of this very successful, worldwide consulting firm ??“ despite being audited by a reputable accounting firm ??“ was fraudulent. The fraud case caused significant waves in the industry as clients like the World Bank blacklisted the company (Ribeiro, 2009).
The recent financial downturn started in subprime lending markets ??“ a small part of the US banking industry (Stewart, 2008). Yet it quickly spread throughout world markets, eventually affecting stock exchanges throughout the world and the entire banking sectors in America, Europe, Asia, and elsewhere. It has caused untold losses in retirement accounts and caused government officials and business leaders to scramble both together and separately to stem the downturn tide. These events are prime examples of how quickly local problems in one sector can transform into international, cross-industry challenges. Indeed, fraud and corruption in one part of the world quickly affect businesses and governments in other areas. The research in this Special Issue may provide insights as oversight bodies and legislators evaluate actions taken thus far and consider future regulation.Ethics, fraud, and corruptionThe definitions of ethics, fraud, and corruption differ in studies and are often dependent upon the culture in which they are used. Where important to the research, each of the papers in this special issue defines these terms for the reader.
Classical fraud theory has long explained the reasons that an individual engages in unethical behavior (Sutherland, 1949). This theory states that individuals commit fraud and corruption as a result of the combination of three things: pressure, opportunity, and rationalization (Cressey, 1953). Pressures include any type of influence that compels an individual to engage in unethical behavior. Pressures may include a financial need, such as the need to support an extravagant lifestyle, or any other type of pressure (Albrecht et al., 2008c). In order for fraud and corruption to occur, the perpetrator must believe that he or she can commit the fraud and not get caught or, if he or she does get caught, nothing serious will happen. Opportunities don??™t have to be real ??“ they must only be perceived as real by the perpetrator (Hogan et al., 2008). Finally, individuals who engage in unethical acts such as fraud and corruption need a way to rationalize their actions as acceptable (Ramos, 2003). Often, cross-cultural issues show significant differences in the types of pressures and rationalizations individuals use.
The importance of classical fraud theory in explaining corruption and other forms of unethical acts has gained popularity in recent years. In 2002, for example, the American Institute of Certified Public Accountants introduced this framework into SAS 99, Considerations of Fraud in a Financial Statement Audit, to help better train and prepare auditors to detect corruption when conducting financial statement audits.Overview of the special issueThe papers included in this special issue come from a variety of sources. Some of the papers were presented at the 2008 European Academy of Management Conference in Ljubljana, Slovenia; some of the manuscripts went through the regular review process at Cross Cultural Management: An International Journal; and some were solicited from leading scholars in the field of international ethics, fraud, and corruption.
The first two papers of this special issue focus on cross-cultural perspectives; they examine the differences in manager and employee attitudes toward fraud and corruption and how different cultures establish norms that are based on different conceptions of human nature. The third paper examines the use of rationalization strategies to justify corruption in organizations. The next two papers assess the likelihood of financial statement manipulations and bribery in different countries of the world and suggest how cultural characteristics impact corruption. The final paper of this special issue provides a detailed examination from a Chinese perspective to better understand fraud and corruption, highlighting the differences in Western and Eastern attitudes towards corruption and fraud.ReferencesAlbrecht, C., Albrecht, C.C., Dolan, S. and Malagueno, R. (2008a), ???Financial statement fraud: learn from the mistakes of the US or follow in the footsteps of its errors???, Corporate Finance Review, Vol. 12 No. 4
Albrecht, W., Albrecht, C.O. and Albrecht, C.C. (2008b), ???Current trends in fraud and its detection???, Information Security Journal: A Global Perspective, Vol. 17 No. 1, pp. 2??“12
Albrecht, W.S., Albrecht, C., Albrecht, C. and Zimbleman, M. (2008c), Fraud Examination, 3rd ed. , Thomson SouthWestern, Mason, OH
Apostolon, N. and Crumbley, D.L. (2005), ???Fraud surveys: lessons for forensic accounting???, Journal of Forensic Accounting, Vol. 4, pp. 103??“18
Bray, C. (2009), ???Madoff pleads guilty to massive fraud???, The Wall Street Journal, March 12
Carson, T.L. (2003), ???Self-interest and business ethics: some lessons of the recent corporate scandals???, Journal of Business Ethics, Vol. 43, pp. 389??“94Christy, J. (2009), ???India??™s Enron???, Forbes, January 27, available at:;fraud.html
Cressey, D. (1953), Other People??™s Money: A Study in the Social Psychology of Embezzlement, The Free Press, Glencoe, IL
Hogan, C.E., Rezaee, Z., Riley, R.A. Jr and Velury, U.K. (2008), ???Financial statement fraud: insights from the academic literature???, Auditing: A Journal of Practice & Theory, Vol. 27 No. 2
Ramos, M. (2003), ???Auditors??™ responsibility for fraud detection???, Journal of Accountancy, Vol. 195 No. 1, p. 28
Ribeiro, J. (2009), ???Satyam chief quits, admits faking financial results???, IDG News Service, January 7, available at:
Stewart, H. (2008), ???IMF says US crisis is largest financial shock since Great Depression???, The Guardian, April 9, available at:
Sutherland, E. (1949), White Collar Crime, Dryden Press, New York, NY
(The) Times of India (2009), ???Satyam fudged FDs, has 40,000 employees: public prosecutor???, The Times of India, January 22
Chad O. Albrecht, Conan C. Albrecht
Guest Editors

Leave a Reply

Your email address will not be published. Required fields are marked *