Master Thesis Institutional Corruption in Finance and Organisational Solutions Against Losing Ascribed Purpose carried out for the purpose of obtaining the degree of Master of Science, submitted at TU Wien, Faculty of Mechanical and Industrial Engineering Berk Çaycı Mat.Nr.: 00826972 under the supervision of Em. O. Univ.Prof. Dipl.-Ing. Dr. techn Adolf Stepan Institute for Management Science- Work Science and Organisation Vienna, June 2020 Berk Çaycı I declare in lieu of oath, that I wrote this thesis and performed the associated research myself, using only literature cited in this volume. If text passages from sources are used literally, they are marked as such. I confirm that this work is original and has not been submitted elsewhere for any examination, nor is it currently under consideration for a thesis elsewhere. Place and Date Signature Acknowledgements I would like to thank my supervisor Em. O. Univ.Prof. Dipl.-Ing. Dr. techn Adolf Stepan for sharing his insight about institutional corruption. His valuable suggestions helped me to advance my thoughts on the subject and create a better analysis. Moreover, I would like to thank Manca Jurca for proofreading. I am also very grateful for my family and my girlfriend who provided support during the composition of this thesis, including quarantine days of Covid-19 pandemic. Kurzfassung Institutionelle Korruption ist ein Konzept, das entwickelt wurde, um schlecht funktionierende Organisationen aus einer neuen Perspektive zu analysieren. Organisationen können von ihrem Zweck abweichen und ihr öffentliches Vertrauen verlieren, obwohl es keine Anzeichen für individuelle Korruption gibt. Institutionelle Korruption tritt auf, wenn ein rechtlicher, sogar derzeit ethischer Einfluss die Wirksamkeit einer Organisation schwächt und ihr öffentliches Vertrauen schädigt. Letztendlich kann diese Art von Korruption, die Teil der alltäglichen Verfahren einer Institution wird, für die Gesellschaft schädlicher als individuelle Korruption sein. Ziel dieser Arbeit ist es, Erkenntnisse über institutionelle Korruption im europäischen Finanzsektor zu gewinnen. Die Europäische Zentralbank, die Europäische Bankenaufsichtsbehörde, die Deutsche Bank und der Prüfungssektor werden im Rahmen der institutionellen Korruption analysiert. Systemische und strategische Einflüsse, die diese Institutionen betreffen, werden identifiziert, um zu untersuchen, wie sie die Effektivität und das Vertrauen der Institutionen verringern. Darüber hinaus werden Lösungen zur Organisationsgestaltung vorgeschlagen. Schlüsselwörter: institutionelle Korruption, legale Korruption, Drehtüreffekt, Lobbying, Finanzen, Europa, Europäische Zentralbank, Europäische Bankenaufsichtsbehörde, Wirtschaftsprüfung, Deutsche Bank Abstract Institutional corruption is a concept that is developed to analyse malfunctioning organisations from a new perspective. Organisations may divert from their purpose and lose their public trust although there is no sign of individual corruption. Institutional corruption occurs when a legal, even currently ethical influence weakens an organisation’s effectiveness and harms its public trust. Eventually, this type of corruption that becomes a part of quotidian proceedings of an institution can be more detrimental for the society than individual corruption. This work aims to gather insights about institutional corruption in the European finance sector. European Central Bank, European Banking Authority, Deutsche Bank, and the auditing sector will be analysed within the scope of institutional corruption. Systemic and strategic influences affecting these institutions will be identified for examining how they decrease the institutions’ effectiveness and trust. Moreover, solutions concerning organisational design will be suggested. Keywords: institutional corruption, legal corruption, revolving door, lobbying, finance, Europe, European Central Bank, European Banking Authority, auditing, Deutsche Bank 1 Table of Contents 1 Introduction .......................................................................................................... 3 1.1 Problem Statement ........................................................................................ 4 1.2 Aim of the Work and Solution Approach ........................................................ 5 1.3 Methodology .................................................................................................. 6 1.4 Research Design ........................................................................................... 9 2 Fundamentals of Institutional Corruption .............................................................10 2.1 Traditional Understanding of Corruption .......................................................10 2.2 The Path to Institutional Corruption ..............................................................10 2.2.1 Lobbying ................................................................................................12 2.2.2 Revolving Door ......................................................................................14 2.3 What is Institutional Corruption? ...................................................................16 2.3.1 Systemic and Strategic Influence ...........................................................17 2.3.2 Institutional Purpose ..............................................................................19 2.3.3 Deviation from the Purpose ...................................................................22 2.3.4 Loss of Effectiveness and Public Trust ..................................................23 3 Institutional Corruption and Finance ...................................................................26 3.1 Public Institutions..........................................................................................26 3.2 Private Sector ...............................................................................................27 3.2.1 Investment Consultants .........................................................................28 3.2.2 Tax Professionals ..................................................................................29 3.2.3 Rating Agencies .....................................................................................29 3.2.4 Banks .....................................................................................................30 4 Case Study Institutions .......................................................................................33 4.1 European Central Bank ................................................................................34 4.1.1 Mission and Goals .................................................................................34 4.1.2 Institutional Design .................................................................................34 4.1.3 Analysis within the Scope of Institutional Corruption ..............................35 4.1.4 Solution Suggestions .............................................................................41 4.2 European Banking Authority .........................................................................44 Introduction 2 4.2.1 Mission and Goals .................................................................................44 4.2.2 Institutional Design .................................................................................44 4.2.3 Analysis within the Scope of Institutional Corruption ..............................47 4.2.4 Solution Suggestions .............................................................................53 4.3 External Auditing Sector ...............................................................................55 4.3.1 Mission and Goals .................................................................................55 4.3.2 The Context of the Sector ......................................................................56 4.3.3 Systemic and Strategic Influence Factors ..............................................60 4.3.4 Analysis of European Union Solutions ...................................................65 4.4 Deutsche Bank .............................................................................................72 4.4.1 Mission and Goals .................................................................................72 4.4.2 Institutional Design .................................................................................73 4.4.3 Analysis within the Scope of Institutional Corruption ..............................75 4.4.4 Solution Suggestions .............................................................................84 5 Concluding Remarks ...........................................................................................92 5.1 Discussion of the Results .............................................................................92 5.2 Limitations ....................................................................................................95 5.3 Suggestions for Future Research .................................................................96 References ................................................................................................................98 List of Figures ..........................................................................................................120 List of Tables ...........................................................................................................121 List of Abbreviations ................................................................................................122 Introduction