Characteristics of Leadership: Corruption

It is covert and deceptive by nature. When a strategy fails, it’s usually public and visible. Corruption, by contrast, relies on secrecy, misdirection, and falsification to survive. It creates a shadow system within the company that actively works to undermine internal controls and transparency.

It acts as a systemic contagion. Unlike bad management styles, which might just lower morale, corruption degrades the ethical baseline of the entire organization. When employees see leaders benefiting from corrupt practices without consequence, it creates a normalization of wrongdoing, making it seem acceptable or even necessary to succeed.

Classic Stages

Corruption follows a predictable pathway in an organization or individual:

Stage 1: Slippery Slopes. Coined by behavioral ethics researcher Francesca Gino, slippery slopes are small, grey-area compromises. They might start as a tiny rule bent to hit a quarterly target or a lavish gift from a vendor quietly rationalized as just business.

Stage 2: Institutionalization and Normalization. As minor violations go unnoticed or rewarded, they become the norm. This is the cultural creep. New employees are socialized into the wrongdoing culture, learning that this is just how business gets done here. Sociologist Diane Vaughan labeled this the normalization of deviance. What started as a rare exception quietly turns into standard operating procedure. Organizational researchers Blake Ashforth and Vikas Anand highlighted that, at this point, corruption becomes institutionalized, and those who raise concerns can often be isolated or silenced.

Stage 3: Entrenchment and Concealment. If not contained through internal or external controls, misconduct can fully entrench an organization. Instead of innovating, the company spends energy and effort covering up just to keep the lights on.

Stage 4: Exposure and Consequences. Eventually, the system becomes unsustainable. External triggers such as a whistleblower leak, a regulatory audit, investigative reporting, or a sudden financial deficit likely will expose it. Next can come prosecution, regulatory fines, loss of shareholder value, and—in extreme situations—corporate collapse.

Under Interrogation

When internal controls fail and corruption reaches the point of exposure, federal law enforcement steps in to hold bad actors accountable. While agencies like the US Secret Service, IRS, and US Postal Inspection Service handle a portion of financial crime referrals, the FBI serves as the primary investigative agency for federal white-collar matters. The bureau handles more than one-third of these cases nationwide.

To explore what local executives need to know about financial crime, reporting, and prevention, I sat down with Supervisory Special Agent Andy Smith, who’s in charge of the White Collar Squad at the FBI Anchorage field office.

Q: What are the early red flags or subtle operational indicators that a business, or its leadership, might be sliding into corrupt practices and potentially committing financial crimes?

We have lots of tools to investigate financial crimes. For example, the FBI has a cadre of forensic accountants to help special agents investigate increasingly complex financial cases. The money doesn’t lie, and following the money leads the FBI to those involved in financial wrongdoing, even in complex, document-intensive white-collar crimes.

White-collar crime is not a victimless crime; it impacts employees, shareholders, communities, and taxpayers. I cannot emphasize this enough: reporting is key. If you see something, say something.

Q: Things are different in Alaska. We have vast natural resources, federal funding, remote infrastructure projects, and tight-knit business networks because everyone knows everyone. How do these distinct market factors shape the specific types of corporate and financial crimes your office investigates here in the state?

Additionally, one of the largest parts of the Alaska economy is from federal funds coming into the state for various purposes, one of which is to build needed infrastructure. This can present an opportunity for wrongdoing.

That said, as part of a renewed focus on combatting financial frauds and schemes, the FBI is prioritizing financial fraud investigations to include fraud against the government, corporations, and the American people.

This renewed focus extends to Alaska, even with its geographic remoteness. To accomplish this mission, the FBI not only works closely with local, state, and federal law enforcement partners across Alaska but also private sector partners to combat fraud in even the most isolated areas of the state. Relationships are incredibly important to the FBI.

Q: Is there anything further you’d like to share?

Final Judgment

Essentially, corruption is a combination of people abusing power and stakeholders or systems not keeping them in check. What makes corruption uniquely dangerous compared to ordinary leadership failures like ego or hubris is its reliance on secrecy, deliberate breach of fiduciary duty, and its tendency to become normalized and spread over time.

Join us next month as we explore callousness.