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Leadership and Its Challenge: Corruption

By: Stephen Murray Kiernan, Director at Global Impact Leaders

Corruption: What Kind of Monster Are We Facing?

One could say that, in the context of a particular situation and even for the best leaders, corruption is an activity that all individuals and businesses must engage in to advance. The ideal, completely clean society is for dreamers. Those who share this viewpoint point to the experience of American companies that lost foreign orders worth billions of dollars because they adhered to the U.S. Foreign Corrupt Practices Act. These companies can hold their heads high; they are morally correct, but they ended up poorer because of their actions.

This argument seems very persuasive. It is an undeniable fact of life, whether one focuses on the social or commercial side of the matter, that in most countries, corruption is a winning formula for both givers and takers. People who do not participate are seen as impractical or failures. And we are talking about the majority of countries on this planet. It is a surprise for people in Western Europe and North America how widely practiced and forgiven it is in other countries. They come from countries where, for example, the Western world’s leader Jimmy Carter lost money by being President of the United States (he had savings of $1.2 million in 1976 and $800,000 in 1980), and Harold Wilson, three times Prime Minister of the United Kingdom and one of Oxford University’s brightest graduates, died relatively poor. Judging either of these two men to be richer after their time in public administration would have deeply offended anyone in their respective countries except their heirs.

So corruption is widespread; it is accepted with sick humor as a necessity by which the wheels of everyday life turn. Then why say it is bad if it helps so many people? For starters, it is bad because it can initiate, and certainly fosters and sanctions, a mindset that propagates and maintains all criminal activity. It is, in short, one of those vices from which other vices emanate. However, corruption is not so clearly defined. There are beneficial and harmful forms. Paying a customs officer to import a quality product might be classified very differently from bribing a politician to build a prestigious but unnecessary office building. But even so, it cannot be denied that corruption is a vice and that, even in its best examples, it can lead us to terrible waste and discontent.

What are the effects of corruption then? I have already spoken of a state in which people become accustomed to it and see it as a necessary nuisance, a situation that affects behavior and values. In the business sphere, an economy that is not honest or understood to be so discourages investment. People who make decisions in a multinational firm or the World Bank look at the black marks and decide not to put money into an economy that diverts funds to obscure bank accounts. A few years ago, it was estimated that a rich assortment of African leaders had twenty billion dollars in Swiss banks.

The way of doing business is also affected by the fact that the more obstacles there are, in the form of bureaucratic requirements, the greater the opportunities to squeeze that extra account from the investor or trader. Frequently for this reason, there is unnecessary red tape in many countries, and this influences overall commercial well-being. The elements that distinguish those nations with a relatively low level of corruption, from Denmark to Finland or the United States to Australia, are as follows: they have created, and do not interfere with:

– an independent judicial system

– a free press

– a well-paid civil service (from border and port officers to police and tax collectors)

– an economic system in which companies must compete reasonably fairly for their market share and capital.

A psychology among their citizens that is instinctively repulsive to corruption sustains all these elements; there exists, for example, in these countries a marked sense of difference between public duty and personal gain.

It is not being suggested that these countries are a group of saintly traders. Many have found clever and covert ways to do business corruptly; some subsidiaries use bribes, with or without the knowledge of their headquarters at home. And corruption will always be the lesser evil in the context of national good or national danger, although this is less important since the end of the Cold War. However, the current dominant philosophy of fair competition, with and between nations, finds that corruption is an obstacle to investment, or a fickle and rapacious friend, or anything else that goes against the much-desired ease of predictability.

A few years ago, the twenty-nine members of the Organization for Economic Cooperation and Development, and five other countries, signed an “Anti-Bribery Convention” that follows the American example of considering it a crime to bribe a foreign official. When combined with actions taken by other legislators, the World Bank, the International Monetary Fund, and multinationals in general to eradicate that inefficient activity called corruption, one could say that we are making positive progress.

The Influence of Corruption

There is an apparent element of efficiency in the processes of corruption. We have all heard the phrase “greasing the wheels,” and we believe it sufficiently describes the advantages of making extra payments to intermediaries so that contracts are received and products are sold. If these payments are not made, as the argument goes, another competitor will take the opportunity simply by paying the bribe that the first company very conscientiously did not take. Therefore, there is no place for ethics in this jungle where there are no receipts and good intentions are bought with brown envelopes and bank transfers to untraceable accounts. Modern corruption is based on a balance (which is also a facade for efficiency) of legitimate business practices and the greatest audacity in dirty business. I would like to justify this statement and point out the ineptitude and influence that the contagious force of corruption represents.

The first issue that must be confronted about corruption in general terms is that it is terribly inefficient. As clarified in the previous statement, it would seem to help the overall mechanism in trade, while in reality, it weakens it. Let us look at this issue from various angles. When an official receives a certain amount or percentage of a deal, he will want to hide all evidence of his enrichment. If he is smart, he will not openly spend the money or do so in a way that can be traced back to him. This makes very happy the highly secretive foreign banks. The official will continue in his very poorly paid but highly profitable position, while his additional earnings do little more than wait for his early retirement. This is not always the case, as some illicit investments prove, but it is a widespread practice as clearly shown by the twenty billion dollars owned by African dictators that are kept in Swiss banks.

Corruption decreases the efficiency of investment because a certain commission is often required for the investment to actually take place. It is also contrary to the justice that foresees clear and open competition in the case where a bad company wins a contract simply by offering the largest bribe. And so on. International investors and donors have been burned in the past by putting money in countries where the most important business principle is the lack of honesty in business.

It is a well-known fact that the more corruption exists in a business economy, the less investment there will be, with the consequent decrease in growth. These results are not regularly obvious in places where bad practices seem to be a necessity. But if one looks at the situation from a certain distance and observes what is happening overall, in the long term, it is visible how cancerous the situation of affairs is. Even at a low level of corruption, if it is apparently successful, it will drive other illegal practices, thus increasing the vicious circle of inefficiency. It is highly contagious because it seems to produce such wealth in very little time and with only a small amount of effort. The fact that the perpetrators are not brought to justice makes it much more attractive.

In view of such success, those honest business practices that would make the economy healthier are avoided as if they were inappropriate to the situation and a way to lose one’s market share. The current thinking in business finds that corruption is a diabolical obstacle on the route to fairer economic activities. This way of thinking wants to reduce regulations, open trade, and free trade rates, among other objectives. Most countries want these things to happen to strengthen their economies, increase their international prestige and attractiveness, and keep their increasingly sophisticated electorate happy with clean and equitable economic policies. They do not even want to suffer the indirect embarrassment of having any of their multinationals involved in corrupt practices in other countries. All this would work in their favor.

And why? One example is enough. According to the World Bank, between 20% and 30% of the loan granted to Indonesia was hijacked by local officials and their cronies. The facade of Indonesia’s economic prosperity collapsed, and the country now has a mix of problems of lack of investment, cynicism from donor organizations, and a dangerously critical population.

Ethics, Inside and Outside the Office

Someone looking from inside the company where he works probably has a different perspective from someone looking at the same company from the outside. The three main dimensions can be interpreted in many opposing ways: the height of its success or failure, the width of its profits or losses, the depth of its professionalism or incompetence. A man, employed by a company and well-motivated by loyalty to it, does not see anything wrong with the way his company operates. Another man, detached from any sentimental or monetary interest, can only see a complacent and mediocre business.

What would each commentator say then about one of the most difficult areas of business, the one involving ethics? There are many factors in the scheme, both of the internal and external type. As a central part of the way they are constituted, many organizations have internal policies that focus on the way they conduct their business—in the fair and respectful conduct of their personnel. At the same time, there are many rules imposed by the government that demand clearly or implicitly a high level of ethical behavior. There may be various degrees of ethical observance at each level of the company, from the managers themselves to the poorly educated young man who sweeps the factory floor. Some know the company’s rules and traditions very well; others have never bothered to read them.

None of this means that they will consequently work according to these guidelines—the wisdom that exists between their ears may very well be there like a book bought for the appearance of its binding rather than its content. There are many reasons to adhere to a code of ethics but, of course, not all deserve our admiration. For example, a company may be interested in protecting its good image, which is another way of saying that it is very afraid of bad publicity. But there are also good reasons why a company can function in a healthy way according to a number of high principles. Each company is made up of human beings, each of whom possesses different feelings that make him balanced and whole. This is why it is blind to consider only the statistics and pretend indifference to the exclusion of humanistic factors.

One reason for the presence of ethics in a company is due to the fact that it is integrated into the “package” of professional methods and standards by which the firm stands. If the moral screws are removed, the rest of the company will very likely fall like old posts from scaffolding. Another reason why the code of ethics exists is that it is a legacy of an “old” way of doing business. In any case, this kind of argument makes us suspect that perhaps not everything is right. There are serious pressures on companies to modify their behavior, particularly when it is appreciated that the competition has obvious advantages through its lack of ethical conduct (for example, some oil companies in Nigeria).

It can very soon become evident that following certain principles can be alienating in the context of an authentic business culture and ultimately self-destructive. The shareholders of a modern company, sensitive and charitable individuals, think that they may be at home, but they are very far from the frauds and deplorable working conditions of their companies and therefore the only thing they see are lower-than-expected profits, instead of lower-than-expected life expectancies. And, once again, the same modern company may very well be so interested in innovating that it forgets ethical issues or sees them as an impediment to its natural development.

All this may sound like there is no place for ethics in the world of big international business, where the simple minds of managers are encapsulated by the closure of factories through the process of moving a flag on a world map in the head office. On the contrary, there are many contemporary conditions that, in my opinion, favor the inclusion of ethical practices in the general behavior of a company:

– Uniformity of corporate policy, for example, in multinationals, in the sense that identical ethical practices help maintain harmony in each branch of the organization. As such, they can be the backbone of corporate standards.

– They may exist as a means to keep staff and customers happy regarding the quality of care and attention they are receiving.

– Ethical disputes create conflicts in which the company will almost always be seen in a bad light.

– A whole species of watchdogs, who monitor issues from the welfare of people in developing countries to the good health of the ecology, maintain a constant and potentially very noisy vigilance. There are many more, but these, I hope, give a strong flavor to business ethics.

Private Thoughts for a Public Manager

There is a sense that those involved in public administration could learn a lot from the planning practices and demands of the most professionally managed private companies possible. There is no reason why the methods and mentality, of the highest caliber, which are the blood, bones, and spirit of successful companies, cannot be taken on board by the people whose job is to manage the society we live in. There are several reasons why this may not happen: ignorance, which is the effect of a lack of curiosity; jealousy, which reveals a low level of self-confidence; incompetence, which is a failure in recruitment, training, motivation, or leadership; and others. But ultimately these are weak excuses.

The process of changing this is, after all, relatively simple, cheap, and pleasant for the participants. There are (at least) six steps to planning and implementing the kind of activities that define a well-organized institution, whether the corporation is public or private, new, or in need of adaptation. The first step involves identifying objectives. It begins by observing the basic nature of the organization, which means in this case how it works and what it is capable of. Like all the following steps, this deserves a kind of investigation that is strictly clear, honest, and complete.

Once this investigation is completed, a review can be conducted in terms of the organization’s present and future needs. This stage is then completed by selecting the guiding principles that will challenge each member of the staff and measure their critical capacity for the job. At the same time, another series of activities is occurring that comprises identifying the real strengths and weaknesses of the organization. This involves observing every inch of how the company operates and the skills of each employee, in accordance with a relentless adherence to quality control.

A potential distraction here is the element of peer pressure or loyalty that may exist among colleagues. But as a matter of rigorous justice, this must be carried out conscientiously and without favoritism. Another problem could be the temptation to focus on weaknesses rather than strengths, as they might be easier to identify. But all aspects must be handled so that recommendations can be made to improve the structure of the organization, the fluidity of its work, and the application of its employees.

Another task that must be carried out has to do with identifying the best techniques, based on the company’s needs, strengths, and weaknesses. A wide net can be cast to find, inside and out, a whole range of methods and their true employment. If the company forgets the real situation in which it operates and instead has impossible dreams of production levels and market demands, it may very well happen that the methods chosen lack any real value. They could give the impression of strengthening the company but, through this hallucination, the company is actually performing below its optimal level in terms of its techniques and procedures.

The next step, a very big one and established based on all the preparations previously made, involves designing an annual agenda of activities. This should be considered the conjugation of the decision-making process and the action system. If the former stands alone, it is the professional equivalent of metaphysics; if the latter occurs without strong prior thought, it is the equivalent of a lottery. To make decisions correctly, problems and opportunities must be identified and then solutions formulated. This should not be a matter of spontaneity and improvisation. On the contrary, the proper execution of improvement programs must follow a chronological order that leads in a well-monitored way to the complete and successful completion of each action.

We have reached the stage that involves managing implementation. It must be known in specific detail what are the specific responsibilities of each person, the operating procedures, and the instruments required to bring the activities to a satisfactory conclusion. This is where the value of an efficient organizational system and a tireless manager is most evident. This is because in these cases, short circuits in communication, good understanding, professional compliance, and total follow-up occur. The sixth stage involves reviewing techniques in the broadest sense of application. This will work consistently and quickly only if a quick review system is created. This means saying that the principle of management is an admirable thing on paper but only deserves our respect when implemented regularly in a sensitive manner.

At the same time, a certain amount of elasticity must be integrated into the organization’s mechanism (and the minds of those making decisions) according to what the constant review process recommends regarding the scope of the activity plan. This way, we can achieve our final priority: the most demanding and rigorous level of contribution from each staff member and the organization in general, whether in the public or private sphere.

Contact: smurrayk@cilatam.com; www.cilatam.com

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