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| Public Sector Governance Frank Vogl on Global Corruption
* * *Tuck International Forum: Confronting Corruption in Global Business
In the early 1990s I was privileged to be asked to join a remarkable American entrepreneur, James Sinclair, in a mining venture in Tanzania. This was a country that for over 20 years had evolved a strong suspicion of foreign corporations and had therefore been reluctant to permit them to develop the nation’s gold, diamond, nickel, copper and other mineral resources. Mr. Sinclair, the Chairman of Sutton Resources of Canada, understood that if his company was to succeed in Tanzania, then he had to earn the trust of the authorities. There were those in Tanzania’s Government, no doubt including the then youthful Minister of Energy and Mining, Jakaya Kikwete, who were suspicious of foreign companies, who had experienced their arrogance and who had seen how some had come to grab assets, maximize short-term profits and move elsewhere. Mr. Sinclair took up residence in the country. For months he dedicated himself to understanding the local culture, the people and the ways in which one earned respect. He believed that success would result from transparency, honesty, good deeds and a long-term investment commitment. I was an advisor to the Chairman and a member of Sutton’s Board of Directors. We never paid bribes. We demonstrated that we were good corporate citizens. Our company went to substantial lengths to underscore our long-term commitment as solid corporate citizens to Tanzania. Mr. Sinclair’s daughter, Marlene, settled in Tanzania and has played and continues to play important roles in philanthropy in the social services area there. Our commitment was the basis for establishing trust and in response we were treated fairly by the Government. We engaged in long-term philanthropy. We assisted the government to build a global strategy to attract more top quality foreign investment into the mineral sector. We set clauses in our mining contracts to fund training for Tanzanian geologists. We took the lead in assisting with healthcare for miners and we raised the bar in mining contracts in Tanzania when it came to environmental protection. Sutton Resources was acquired by one of the world’s largest mining companies, Barrick Gold Corporation of Canada. In recent years Barrick has invested major sums in mining in Tanzania and the success of our company, followed by Barrick’s success, has brought hundreds of millions of dollars of foreign direct investment into that country. And, Mr. Sinclair, who today heads TanRange of Canada, has continued to invest in Tanzania and build a host of high value mineral assets with great potential. He has never paid bribes. Nobody asks him for bribes. He has succeeded in building trust and being seen as a partner to a nation striving to develop. His approach and his company are examples of what I believe must be the corporate anti-corruption compact of the future. Moreover, Mr. Kikwete is now the President of Tanzania with formidable experience, influenced in part by James Sinclair’s example, in understanding how good foreign corporate investors can contribute to his country’s development. In conclusion, let me emphasize that the James Sinclair approach is the route that must be encouraged. It is about not paying bribes. Importantly, it is also about making meaningful corporate contributions to the communities and the countries in which one operates as a business. Corporations have opportunities for huge rewards that can and will be all the greater and more sustained if their actions are driven by uncompromising integrity cultures. The business leaders of tomorrow who will enjoy the most respect and the most success will be those who know that doing the right thing is always preferable to doing what may yield the maximum short-term profit. To download the full lecture. * * *Progress & Challenges in the Global Fight Against CorruptionBy Frank Vogl EthicsWorld Publisher In a January 31, 2007 presentation on “Grand Corruption” EthicsWorld’s publisher, Frank Vogl, argues that the costs of corruption, including those related to global security, tend to be under-appreciated. He takes stock of progress by answering the question: are we winning in the fight against corruption? Vogl reviews critical issues in corporate corruption and international bribe-paying and highlights proposals for reforms. Finally, in a section of his presentation on bribe-taking, he argues that multilateral aid agencies need to better coordinate their strategies on suspending aid to corrupt governments; they need to greatly boost their partnerships with civil society; and, their efforts will fail unless they appreciate more substantively that politics is an absolutely central issue in this field that needs to be much more fully taken into account in the design of anti-corruption projects and programs.
Presentation to the Osher Lifelong Learning Institute at Contents - Five broad Questions:
Click here to download the full text * * *2006 International Business Ethics Conference Business Ethics in the Corporate Governance EraDomestic & International Trends in Transparency, Regulation, and Corporate Governance
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“As the handmaiden of repression and censorship, corruption undermines private sector investment and skews the playing field against small business. Corruption keeps schools from being built. It saps resources for fighting AIDS and improving maternal health care. It distorts government decision-making in innumerable ways and – perhaps most terrible of all – it robs people of their faith in institutions and leaders and democracy itself.”
-Huguette Labelle, Chair of the Board of Directors of Transparency International, at the International Anti-Corruption Conference, November 15, 2006.
Progress is being made in the global fight against corruption.
Nuhu Ribadi, Executive Chairman of Nigeria’s Economic & Financial Crimes Commission reports that over $5 billion in stolen funds has been returned to his country over the last three years. He adds that controls geared to preventing illicit outflows of cash have resulted in substantial sums of “corrupt cash” being invested in mainstream Nigerian businesses. Redempto Parafina, coordinator of the G-Watch (see Best Practices by NGOs for more on G-Watch’s work), a non-governmental organization in the Philippines, reports that anti-corruption actions by a growing number of civil society organizations have led to huge cuts in basic school text book prices and the ending of schemes that saw tens of thousands of books failing to reach designated schools. In Bangladesh, Manzoor Hasan is gaining mounting support to develop the Centre for Governance Studies (CGS) BRAC University. In Kenya, Gladwell Otieno is close to launching the African Centre for Open Governance (AfriCOG).
Across the world a rising number of new anti-corruption initiatives are coming to the fore, promoted by civil society, business, government and international aid agencies and research centers. About a dozen years ago the landscape was largely barren. Transparency International, founded in 1993, was a pioneer and today it has over 75 national chapters around the world. At that time the World Bank and other aid donors largely ignored the corruption issue with the Bank’s leadership asserting that it was “too political” for an aid agency. Now, the Bank and all other major multilateral and bilateral aid agencies have good governance and anti-corruption as a top priority. Numerous official international anti-corruption conventions have been signed and the official communiqués of global summits regularly feature anti-corruption resolutions (a decade ago this was rare).
But, is corruption declining?
Is there any evidence of reduced bribe-paying or bribe-taking?
It is difficult to find the evidence to answer these questions in the affirmative. But, so much is happening on so many fronts that cautious optimism may well be in order. This was certainly evident among the more than 1,200 delegates from over 100 countries who crowded into plenary sessions and more than 40 workshops at the 12th International Anti-Corruption Conference held in Guatemala from November 15-18, 2006.
The meeting provided an opportunity to take stock – to look at a host of critical issues and find some common ground on where actions can be taken on a priority basis. The issues considered included the following:
MONEY
Greed drives corrupt practices and usually the focus is on cash. Bar the taking of cash and you bar much of the abuse of office for personal gain – corruption. The anger of many people over the difficulties involved in preventing corrupt officials from shipping their loot out of their countries, and in securing the repatriation of the cash even if one knows where it is deposited overseas, is substantial. Across Eastern Europe, Asia, Latin America and Africa, there are civil society organizations that are frustrated at international financial systems that appear geared to helping the corrupt.
A central concern is money laundering. Progress has been made in recent years, partly due to the voluntary efforts of banks and TI in forging the Wolfsberg Principles. Then, 9/11 made international anti-money laundering a major governmental priority given the imperative to cut funding to terrorist organizations. The authority of the Financial Action Task Force (FATF) rose. Corrupt officials, however, continue to engage intermediaries who facilitate the laundering of stolen funds across national borders. The application of laws and regulations to foil the facilitators is often undermined by hosts of national regulations from one country to another that often seem to contradict international regulations and thus create confusion. Banks and regulators are working on this, but progress is slow. It is a similar jumble of often contradictory regulations (providing high incomes to lawyers) that also complicates the issue of the repatriation of stolen assets. Hopefully, recent Nigerian successes may inspire progress across a broader front.
PUNISHMENT
But, as it was noted at one of the IACC workshops, corrupt officials and the complicit financial intermediaries will continue to forge ahead if they feel the risks are few. Punishment in this area appears to be infrequent. As former Peruvian public prosecutor José Ugaz explained at the IACC, politicians in too many countries enjoy immunity from prosecution while they hold public office and then they secure asylum in countries that ignore extradition demands. Why, he asked, is former president Fujimori still able to stay in Chile after a year there and not be returned to face trial in Peru? (The IACC conference passed a resolution about Fujimori.)
Punishment, it was discussed at the IACC, can come in many forms. Too few politicians who have stolen fortunes have ever faced trials for their crimes. The IACC took place as former top cabinet members in Kenya, who had been forced to resign office because of documented allegations of their massive thefts, were reinstated into the Kenyan cabinet! In many countries, it was noted, the public has a cynical view of law enforcement – in one nation after another it seems that people are convinced that the law will never deal appropriately with the big corrupt crooks. It is hard to find evidence to suggest these views are misplaced. Many delegates felt that an increasing priority for civil society is to work to better monitor the legal system and to campaign for greater fairness and equality in law enforcement. Such an effort may secure some support in early 2007 when Transparency International publishes its next Global Corruption Report (GCR) (click here for EthicsWorld’s report on the 2006 GCR), which will highlight the roles of the judiciary.
Delegates at the IACC also stressed the power of the electorate to punish the corrupt. The recent U.S. Congressional elections illustrated the point. Exit polls in the U.S. indicated that 75% of voters saw corruption in politics as a key issue as they went to vote. The result: many powerful incumbent politicians lost their seats – punishment indeed!
PERSONAL RISKS
The conference also noted that, while calls for greater civil society anti-corruption efforts are well placed, the dangers are rising in many countries for those who seek to wage the good fight. From Bangladesh and the Congo to Venezuela and Zimbabwe, anti-corruption campaigners live in fear of arrest or assassination. The murder of journalists investigating corruption in Asia and in Latin America has been rising. The threats to non-governmental organizations in Russia by the Kremlin are serious. The pressures by authorities in Sri Lanka and Ethiopia are intense on those who might seek to challenge public officials and call for transparency and accountability. On the eve of the IACC, word came that Christian Mounzeo had been arrested for the second time this year by the authorities in Congo-Brazzaville. He is a Congolese anti-corruption activist and a member of the international board of the Extractive Industries Transparency Initiative (EITI) - a coalition of governments, industry and civil society that promotes transparency in the natural resources sector. Its chairman, TI founder Peter Eigen, noted that the arrest is, “A violation of human rights and a travesty of justice. Christian Mounzeo is a civil society leader of the utmost integrity who has championed clean government, a better business climate and greater justice for the people of the Congo. These issues may be unpopular in the eyes of the Congo’s government, but they are crucial to the country’s future." (see press release)
Conference delegates worked at a series of initiatives to counter the mounting threats – ones that of course are just as great for human rights and other social justice activists as they are for anti-corruption campaigners. A number of civil society leaders from high-risk countries met informally to forge support networks to share information, to assure major external contacts in the event of a disaster in one country or another, and to pool experience. Then, there was an animated discussion of official regional and possibly global approaches to protect the basic rights of civil society to freedom of assembly and freedom of expression. A suggestion for initiatives of this kind was made at one of the IACC plenary sessions by José Miguel Insulza, Secretary-General of the Organization of American States.
In addition, it was widely recognized that increased media attention on the governmental threats to civil society and to individuals can contribute to the enhanced safety of those who campaign for justice. This point was underscored at the meeting when Dr. Anna Cecilia Magallanes Cortéz from Peru received the 2006 Transparency International “Integrity Award.” Dr. Magallanes overcame enormous personal dangers to lead the force that successfully prosecuted 1,500 members of the criminal organization of General Vladimiro Montesinos, the collaborator of former president Alberto Fujimori.
VALUES
Crucial to the fight against corruption is the education of young people (as well as leaders of many diverse institutions from the media to business to academia, and of course government) about basic moral values. As Costa Rican president and Nobel Peace Prize winner Oscar Arias eloquently told the IACC meeting, too little is being done to ensure in all societies a core understanding and support of values that reach beyond material concerns and “place at the center the right of all human beings to a place under the sun.”
In an increasing number of countries, civil society organizations are taking anti-corruption campaigns into the schools, working with teachers to find ways to make children strengthen their understanding of core values. Efforts are being made to involve faith-based organizations in this agenda (so far with limited success). More broadly, good governance campaigns by civil society in many countries are gaining traction with businesses and not-for-profit organizations that stress core values, building a values-based institutional culture, and emphasizing the importance to chief executives to demonstrate an ethical “tone at the top.”
POLITICS
Corruption is all-too pervasive in almost every corner of politics, from the bribing of voters in elections, to the nefarious influence of lobbyists using criminal tactics to influence legislation, to the abundance of money flowing to political parties and candidates for political office for their campaigns by those who seek special influence. It often seems that no country is spared the curse of corruption in political life. Cases such as those involving lobbyist Jack Abramoff in the United States and the current Government in Kenya are highlighting the power of secret networks of corruption that embrace politicians and civil servants and business. Moreover, the rapid evolution of globalization is enabling the networks to launder cash to overseas havens, facilitate the engagement of foreign players in contracting and bribe-paying and making a mockery of law enforcement. In parallel, the pace of governmental decentralization is accelerating in many countries and giving rise to the potential of rising political abuse at the local and municipal levels.
These are huge issues and the discussions at the IACC merely scratched the surface. But work is proceeding in many countries to try and clean-up politics. At a global level, there is increasing emphasis now on conventions that seek to ensure a higher level of transparency and accountability in all areas of public life. This is at the core of the new United Nations Convention Against Corruption. Anti-corruption campaigners are pressing public authorities to enforce the conventions and agree to rigorous monitoring of new ones.
In addition, in a rising number of countries diverse organizations are attracting increasing media attention to new research and to advocacy campaigns that highlight the range of corrupt practices in national politics. Whether the mounting public interest will lead to sustained reforms remains an open question. That there will be no reform without punishment of corrupt politicians is clear (see above). Even in the U.S., the media and political experts are acknowledging that corruption problems are undermining the basic roles of the Congress, as noted, for example by a November 9th report by the Committee for Economic Development.
What became evident at the IACC was the need for greater exchanges of experience and knowledge across national borders of many aspects of corruption in politics. A. Ruzindana of Uganda, Chairman of the African Parliamentarians Network Against Corruption (APINAC) believes that legislative bodies in developing countries can play greater oversight roles of the executive branches of government. He says his organization is growing and gaining strength through ties beyond Africa with, for example, the Global Organization of Parliamentarians Against Corruption (GOPAC).
A crucial tool in undermining the secret corrupt networks rests in public information. Transparency – exposing the facts for all to see – has been shown to be powerful for promoting accountability. Former Kenyan chief ethics and anti-corruption official John Githongo, who resigned and sought refuge in the U.K. as threats on his life mounted because of his work, told the conference that detailed exposures of actual cases where embedded networks engage in grand scale corruption can have an impact. But, discussions at the IACC left no doubt that success comes only if pressures on government for action are maintained, if the courts are fair and active, if courageous prosecutors are in place, and if all engaged understand that the skill of corrupt top politicians to overcome adversities dare not be underestimated.
CONVENTIONS
Building international frameworks to achieve actions, to articulate the responsibilities of governments and to direct policies to curb corruption, has become a central theme of IACC conferences over the last decade. The OAS Convention was the first major regional anti-corruption initiative of its kind, but its impact has been marginal at best. The challenge now is to ensure that its monitoring mechanisms are seen by the Latin public to be working. The anti-bribery convention of the Organization for Economic Cooperation and Development, signed by 36 countries, has yet to be meaningfully enforced. The failure here represents a humiliating situation for the very same industrial countries that are using their aid agencies to drum good governance into the heads of the leaders of poor nations. There was a sense among some experts at the IACC that crunch time is looming for the OECD Convention and that it is going to be essential that the level of serious investigations and prosecutions of overseas bribery of government officials rises in the year ahead.
There was much talk about the United Nations Convention Against Corruption. It is new and holds much promise. UN Secretary-General Kofi Annan has asserted that, “If fully enforced, this new instrument can make a real difference to the quality of life of millions of people.” The key rests in his first few words. Will this U.N. initiative, like so many others, languish and fail to be applied? At a major forthcoming conference in Jordan in December 2006 governments will have the opportunity to commit to effective monitoring. Civil society will be present to push for full enforcement.
HUMANITARIAN ASSISTANCE
The massive earthquake in Pakistan and the tsunami in Indonesia served to remind the IACC of the opportunities for large-scale corruption at times of humanitarian disaster when the charitable funds and the official aid flood into a country in a haphazard manner. Time and again, it seems, the donors just do not learn from previous errors. The criminals benefit. Repeatedly, the opportunities for corrupt practices surface as the donors fail to coordinate adequately; their zeal to disburse funds rapidly overwhelms their prudence; their focus on being seen by the media to be highly active relegates a focus on safeguards to a low priority; the lack of local information by international donors compounds the problems, according to the discussions at the IACC.
What can be done? The international community needs to focus still more directly on measures that ensure that the victims of future natural disasters obtain the maximum benefits in ways that are transparent and efficient. Key actions should include a greater commitment by donors to coordination, enhanced priority to engaging civil society as a meaningful partner by governments and donors, and strengthening independent monitoring, which can include civil society. The lessons learned from special seminars - such as one involving TI, the OECD and the Asian Development Bank in Indonesia last year - need to be learned. Perhaps, there would be progress if there was a major international commission of investigation into corruption in the Indonesian disaster, where by some accounts vast amounts of cash have still not been disbursed and the agonies of countless tsunami victims continue to this day. (For more on this topic see http://www.adb.org/Documents/Books/Curbing-Corruption-Tsunami-Relief/default.asp)
HUMAN RIGHTS
A rising number of studies have shown how countries perceived to be highly corrupt also have terrible human rights records. Yet, the anti-corruption organizations and the human rights organizations have tended to steer clear of each other, despite a common focus on the same villains in governmental power. The need for greater cooperation and for a deeper understanding of the overlaps between anti-corruption and human rights was a clear message from the IACC. In this regard, the comments made to the IACC by Peter Ackermann were particularly interesting. He has created the International Center on Nonviolent Conflict,whose prime focus has been on the use of civilian-based, nonmilitary strategies to establish and defend human rights, democracy and justice. He sees a growing area of common space between the issues that he has been most preoccupied with and anti-corruption. It is linkages like these and the networks that can emerge as a result that are particular virtues of conferences like the IACC.
ENVIRONMENT
There is an equal deficit in understanding, linkage and cooperation between environmental movements and the anti-corruption community. Initiatives have been launched relating, for example, to forestry and to safe water. However, progress has been tepid. There is a need for more research and the decision by Transparency International to focus its 2008 Global Corruption report on water may be beneficial. There was a paucity of environmental organizations present at the IACC, just as there were few anti-corruption campaigners evident, for example, at the major Business for Social Responsibility conference in New York City the week before the IACC. Civil society, like business, has a convenient way of compartmentalizing issues – it may be comfortable from a management perspective, but linkages are missed and in this case the protection of the environment is made all the harder.
NATURAL RESOURCES
Just before the IACC convened, the EITI formally came into existence and it is now moving fast to become established, build a secretariat (its location is about to be determined), and seek to play essential roles in an industrial sector rife with bribery and kick-backs. Many countries that are rich in oil, gas and metals, are the homes of appalling poverty and corruption. At its core, the EITI’s goal is to bring full transparency to transactions in the extractive industries and to business and governmental practices. A core driver of the EITI is the need for companies to publish what they pay to public authorities as they explore for and as they extract resources. There was a call at the IACC for greater public information on what companies currently do not publish. Some delegates voiced skepticism that companies would find ways, through highly technical contracts with host governments, to evade full disclosure of all of their payments. EITI has a validation and monitoring mandate and there is a strong sense that this is a timely initiative that offers a good deal of promise. It relates to only one aspect of corruption in natural resources, but a key one and if there is success here, then that is encouraging. A reality check, however, is that despite the wealth of information on corruption produced by the Volcker Commission on the UN oil-for-food scandal in Iraq, there have so far been few prosecutions!
BUSINESS
EITI represents just one initiative where the private sector is committing to more transparency. Extensive workshop discussions at the IACC highlighted a range of others. Corporations are demonstrating a rising willingness to agree to specific anti-corruption standards, pursue employee training and report on the progress that is being made. The rising corporate participation in the UN Global Compact is one example of this. At the same time, multilateral institutions are pressing business to be more transparent. The International Finance Corporation is leading the way in some areas. The President of the Inter-American Development Bank, Luis Alberto Moreno, told the conference that a major challenge and opportunity rests in enhancing all aspects of transparency in the development of large-scale infrastructure projects and here he sounded hopeful, for example, about the major widening of the Panama Canal that is on the drawing boards.
DEFENSE
Corruption in this sector poses an enormous threat to global security. When a Pakistani nuclear scientist is bribed to sell nuclear bomb-making secrets to Iran and North Korea and when terrorist movements use money-laundering schemes to secure funding, then the connections between corruption and security are obvious. But this issue has not yet captured the center of the anti-corruption stage. Too many governments continue to refuse to provide details on their defense budgets and argue that secrecy is essential for national security. Too few civil society organizations concentrate on this topic. An exception is TI-UK, where under the leadership of Mark Pyman, a program to secure information and transparency in the defense industry, including voluntary standard-setting by firms and integrity pact bidding procedures by governments, is moving forward.
* * *
Business Ethics and Public Interest
Speech by Frank Vogl
IV Global Forum on Fighting Corruption, Brasilia, Brazil, June 8, 2005
The opening sentence of a lead article on the front page of the Sunday Business section of The New York Times on May 29 read as follows: “Rooting out conflicts of interest on Wall Street has become a full-time job for securities regulators in recent years.” Our topic today could not be more timely. Our focus on this grand stage of anti-corruption at the Global Forum is business behavior and, in particular, the conflicts of interest that are so evident, but so hard to contain.
Across the world we see business enmeshed in myriad activities where conflicts are at the fore. These may relate to business efforts to influence partners and consumers, customs officials, grantors of official permits, politicians, political parties, and governments. We find countless examples where executives have faced conflicts between their own narrow self-interest and the larger interests of the companies that employ them. We have every reason to be worried about business ethics and the endless conflicted entanglements of corporations. This is especially the case in fragile environments where economic growth is precarious, where infrastructure is inadequate and where widespread poverty is a tragic fact of life – namely in the developing countries.
Today, I am going to propose courses of action that challenge the conventional strategies of official bilateral and multilateral aid agencies and many of the governments of the developing countries, and indeed quite a number of non-governmental organizations.
At the outset permit me to thank the organizing committee for inviting me to this conference and I would particularly like to acknowledge Claudio Weber Abramo and his colleagues at Transparencia Brasil. As I prepared this presentation I was pleased to note that we are meeting here on the 10 th anniversary of the launch of the first Transparency International Corruption Perception’s Index, which has played a critical role in raising public awareness around the world to the unacceptably high levels of perceived corruption in a considerable number of countries. Finally, let me draw your attention to the work by Daniel Kaufman, Aaart Kray and Massimo Mastruzzi of the World Bank Institute, who with their new report “Governance Matters IV: Governance Indicators for 1996-2204,” have provided us all with an encyclopedic base of information to comprehend corruption’s complexity across the world.
* * *
Ethics, Corruption, & Globalization
Speech by Frank Vogl
Keynote Address at the Goodwill Delegates Assembly, June 22, 2003
We live in an ever more challenging world where the contribution you make is vital and where the opportunity you have to expand your contribution, here at home and abroad, is formidable. Today, I shall argue that critical to your future success is the strengthening and the maintenance of an ethical culture in your organizations. This demands management approaches that I will seek to briefly describe consisting of commitment, accountability, integrity programs, monitoring and communicating.
Ladies and gentlemen it is a pleasure to be here. Goodwill has pioneered one of the most remarkable stories of successful philanthropy in the world. You have done immense good. You are constantly building on a long and rich tradition. You have brought to the non-profit sector a business professionalism that makes you a role model, not just here at home, but overseas as well.
We live in a world where more than one billion people barely survive on just one dollar a day. It is a world that has too much corruption and too little charity. It is a global village where it may be more comfortable and easier to focus on problems closest at hand and on the unfortunate in our neighborhoods, but today more than ever, developments in one corner of the village impact the lives of all in the village. Goodwill has a tremendous role to play in the global village, which can yield benefits to you and this great organization, while providing enormous gains for humanity.
Success around the world for all organizations depends on the degree to which they can build trust and strengthen confidence in their integrity among the public, partners, regulators and customers. For American organizations the challenge now is greater than ever.
Challenges to American Organizations
The challenge of building trust overseas has become more difficult. Around the world, we see rising anti-Americanism – and despite the growth of Goodwill in numerous countries beyond U.S. borders, I strongly suspect that in many parts of the globe you are seen as American and, as such, may suffer as anti-Americanism spreads. This damaging phenomenon is the product of three entwined strands – jealousy, White House unilateralism and U.S. corporate scandal.There is jealousy in many places of our nation’s super-power status, our affluence and our way of life. Then, there are fears of the willingness of the Bush Administration leadership to consider preemptive military strikes on foreign countries. We are seen by many people abroad as too ready to use our military and our Pentagon power to solve global problems.
Concern about America’s role in the world is increased by our proclivity to reject the views of the majority of the world’s nations – we vetoed the Kyoto treaty on global warming and we stood alone among nations in opposing the establishment of an International Criminal Court. This unique court, which was formally inaugurated in the Netherlands on June 16, seeks to bring to justice the world’s worst perpetrators of genocide, mass murder and human rights violations.
In addition, many people abroad are worried about the rising power of American corporations and fear that their constant quest for ever greater profits may be at the expense of the globe’s fragile environment. For years our multinational enterprises, which have been in the vanguard of globalization, have countered the arguments of the critics and declared: “trust us.”
Trust in Corporate America has been undermined. The wounds are self-inflicted. Corporate leaders cooked the books, cheated shareholders, perpetrated fraud, and personally pocketed fortunes. They have added to anti-Americanism around the world. Every twist and turn of every horrible episode has been reported in great deal abroad. The scandals have been manna from heaven for long-time critics of American capitalism and globalization. The political influence of these critics, especially in Europe, is increasing. This can impact our trade, investment and general international business interests and make it harder for all American organizations to forge new ties with foreign institutions.
The corruption, the fraud, and the abusive tax evasion at one company after another over the last 18 months, raises fundamental issues and prompt the conclusion that American business has lost its moral compass. That CEOs from coast to coast are ethically challenged and that aspects of our civilized society are in trouble.
Against this background, Rob Walton, Chairman of Wal-Mart, whose company has not been embroiled in any shape in the scandals, recently felt compelled to devote his entire annual letter to shareholders on the theme of business ethics. Evidently, he feels the pressure and the need to go that additional mile to build trust at a time when disenchantment with Corporate America is so pervasive. Mr. Walton noted: “First and foremost, a culture of ethical behavior underlies all that we do at Wal-Mart…Setting the right ethical tone at the top is the first step towards good corporate governance.”
Organizational Ethics
Ladies and gentlemen, no asset is more precious to any organization – be it a business or a not-for-profit – than its reputation.
Today, at a time when corporate scandals abound and when ethics-challenges have come so much to the fore through diverse events in the Catholic Church, the Olympic Games, The New York Times, the Red Cross and United Way and many other types of organizations – at such a time as this every good organization must follow Rob Walton’s example and redouble its good governance efforts.
At the core of organizational good governance is the building of an integrity culture. The leaders of every organization must not just have a meaningful institutional code of ethics, but a plan to ensure they are seen across their organizations as ethical role models. Their pro-active stance, backed by superb ethics-directed communications and employee training, ensure that an ethical culture is built and sustained.
Organizations that fail to assign the highest priority to this challenge will lose their reputations in due course. They will fail.
And, while it is difficult to build the appropriate ethical culture in organizations at home, it is even harder in foreign affiliates and subsidiaries and partner associations abroad.
Barings Bank was a great name in finance. But, it failed to secure the ethical standard that it avowed in its distant affiliates. A junior employee, Nicholas Leeson, based in Singapore, put greed above ethics and committed Barings to vast deals that led to the bankruptcy of the Barings Bank itself.
In Argentina, far from IBM’s head office in New York State, some managers decided that building the balance sheet at any cost was the right thing. Their pervasive bribery produced a scandal that has sullied IBM’s name across Latin America.
International Corruption
So often, the difficulties overseas focus on corruption. There is grand corruption, where senior politicians and public officials, who control the judges and muzzle the media, collude with large enterprises – domestic and foreign – to spend government money. They buy the products and services that involve the biggest personal kick-backs for them, rather than what their nations need. The volume of this grand corruption is tens of billions of dollars a year. It impoverishes nations, it traps the poor in poor countries in endless poverty. It undermines democracy. It distorts fair commerce.
Each year Transparency International, a global anti-corruption group, publishes its Corruption Perceptions Index, which ranks countries in terms of perceptions of corruption among public officials. The cleanest countries from this perspective include the Scandinavians and the Canadians – those seen to have the greatest corruption are also among the world’s very poorest nations in Africa, Asia, Central America and in Eastern Europe.
A former World Bank colleague of mine, Peter Eigen and I and some friends created Transparency International exactly 10 years ago to fight corruption across the world. Today, the organization has 90 national organizations in place. Our fight continues, because as Peter Eigen, the current Chairman of TI has stressed, given all that is going on today in the Middle East, and in some other parts of the world: “There is a deepening recognition of the fact that the democratic gains of the past decade stand at risk if the explosion of corruption the world has witnessed is not contained. If large numbers of people in the emerging democracies become disillusioned with the democratic experiment and start to yearn for times of greater certainty, then the chances are that the old and failed remedies will be tried once more, and further impoverish their lives.”
Transparency International Bribe Payers Index 2002 (www.transparency.org)
In the business sectors with which you are most familiar, please indicate how likely companies from the following countries are to pay or offer bribes to win or retain business in this country [respondent’s country of residence]?
2002 Rank |
2002 |
1999 |
2002 Rank |
2002 |
1999 |
||
1 |
Australia |
8.5 |
8.1 |
11 |
Spain |
5.8 |
5.3 |
2 |
Sweden |
8.4 |
8.3 |
12 |
France |
5.5 |
5.2 |
3 |
Switzerland |
8.4 |
7.7 |
13 |
USA |
5.3 |
6.2 |
4 |
Austria |
8.2 |
7.8 |
14 |
Japan |
5.3 |
5.1 |
5 |
Canada |
8.1 |
8.1 |
15 |
Malaysia |
4.3 |
3.9 |
6 |
Netherlands |
7.8 |
7.4 |
16 |
Hong Kong |
4.3 |
n.a. |
7 |
Belgium |
7.8 |
6.8 |
17 |
Italy |
4.1 |
3.7 |
8 |
UK |
6.9 |
7.2 |
18 |
South Korea |
3.9 |
3.4 |
9 |
Singapore |
6.3 |
5.7 |
19 |
Taiwan |
3.8 |
3.5 |
10 |
Germany |
6.3 |
6.2 |
20 |
China People’s Rep. |
3.5 |
3.1 |
21 |
Russia |
3.2 |
n.a. |
||||
Domestic companies |
1.9 |
n.a. |
|||||
Question: 835 business experts in 15 leading emerging market countries were asked: In the business sectors with which you are most familiar, please indicate how likely companies from the following countries are to pay or offer bribes to win or retain business in this country? |
|||||||
Sadly, our own country’s reputation is far from perfect. The bribes are being paid by American firms alongside companies from many other countries. International surveys show that foreign business executives state that the propensity of American firms to pay bribes is quite high. Surveys of leading business executives in key emerging market economies in 1999 and 2002 for Transparency International by Gallup International showed that U.S. firms are widely seen as having a high propensity to bribe – indeed their willingness to bribe foreign government officials appears to have increased in recent years.
Further evidence from a different source has been published recently by Control Risks Group Limited who commissioned IRB Ltd. to survey international business executives on the corruption issue. One finding was that while many U.S. companies strive to ensure at least partial compliance with the FCPA, “some 67% of (survey) respondents believed that U.S. companies still use middlemen to circumvent anti-corruption legislation either ‘regularly’ or ‘occasionally’.”
Moreover, right now, for example, a full-scale investigation is moving forward – it could be the largest in the 26 year history of enforcement of the Foreign Corrupt Practice Act - into oil deals in the Caspian Sea area. The U.S. is investigating whether representatives of Mobil participated in a scheme to route $78 million in payments from U.S. and European oil companies to the Swiss bank accounts of Kazakhstan's president and his associates.
I am not surprised with the gloomy news about U.S. business reflected in the BPI. Why should we believe that top executives running huge companies that cook the books, that cheat the IRS, that steal from shareholders and employees, and who add tens of millions of dollars to their personal bank accounts, should not encourage the use of bribes to win foreign deals?
Writing to his shareholders at Berkshire Hathaway earlier this year, Warren Buffet explained: “ Most CEOs, it should be noted, are men and women you would be happy to have as trustees for your children’s assets or as next-door neighbors. Too many of these people, however, have in recent years behaved badly at the office, fudging numbers and drawing obscene pay for mediocre business achievements. These otherwise decent people simply followed the career path of Mae West: “I was Snow White but I drifted.”
Well, when it came to ensuring against foreign bribery by their corporations, then I think many CEOs in recent years also “drifted.” The furious quest for ever bigger earnings and the ever-greater linkage between short-term earnings and CEO compensation created massive distortions in many firms. It seems to me to be naive to believe that policies of anti-corruption did not slip, just as policies in so many other corporate areas plummeted.
And, this has added to a pervasive expectation in many parts of the world that Americans seeking business are all too willing to pay bribes. Your challenge, as you venture abroad is to not only be aware of such perceptions and expectations, but to ensure that none of your potential overseas counterparts, let alone your employees, have any doubts where you stand.
This issue is all the greater when it comes to petty corruption, which some lawyers here like to call “facilitation payments” but which are rightly called bribes around the globe. These are payments to low level officials to expedite permits and customs clearances and bureaucratic hassles. They are illegal. They are corrosive. They start small, but have a tendency to become ever larger.
Don’t pay bribes. Just say no.
There is ample evidence that organizations with a very strong ethical culture can impress people overseas with their firm adherence to basic values. Organizations can enter a country and tell official and business counterparts immediately and directly – we don’t pay bribes. We are here for the longer-term. We are here to act as good citizens. We are here to work with you to the benefit of your peoples. We can bring our experience and knowledge to your needs – but we do not pay bribes.
Keeping your excellent reputation will be all the harder as you expand abroad. In the global village of which I have spoken the reporter in Croatia instantly communicates through the internet to the editor in New York – suddenly, to the horror of an American parent organization, a front page article appears in The Wall Street Journal stating that the Croatian affiliate of the U.S. enterprise has been bribing local officials.
The damage is done. The stock price is hit. Shareholders complain. Consumers voice their anger. The organization starts to be depicted as another Enron. Top management finds itself ever more distracted by what is in relative terms for this organization an absolutely minor malfeasance in a country that top management has hardly ever heard of before. But, the smell of corruption wanders the corridors of power, the board starts to ask questions, the legal advisers huddle and ramp up their bills, the CEO feels besieged.
None of you need that kind of grief. The reality is that in the internet age there is nowhere for large organizations to hide.
Pragmatic Ethics Management
Securing and fostering a reputation of integrity is an imperative. If your organization is absolutely confident that it is acting and breathing at the highest levels of institutional integrity, then you will succeed.
In the post-Enron era this demands a 7-point checklist of key actions.
1. COMMITMENT. As leaders you know that unless you and your key colleagues in your organizations are 100% committed to doing the right thing, then your employees will not buy into the ethics code. At home and abroad, leaders must know in their hearts that cutting corners, engaging in minor malfeasance to expedite actions, is just plain wrong. They must accept that sometimes it is better to lose a deal, than to violate sound ethics.
2. ACCOUNTABILITY. Organizations must assign authority to a designated manager, or set of managers, for the implementation of integrity programs. Just chatting to the lawyers from time to time to see if the organization is in compliance is not good enough. The public is distrustful and suspicious. The risks of slips and poor judgments landing big organizations on the front page of The Wall Street Journal are too large. Making distinct individuals responsible for ensuring the solidity and viability of the institutional ethical culture is a necessity today. It makes it easier for executives overseas who may have doubts about the right path to follow to check quickly with head office for guidance.
3. POLICIES. Directors and top executives today need to ensure they have clear policies in place that cover all of the critical issues of institutional ethics – from the appropriate ways to deal with workplace misconduct here at home, to dealing overseas with corruption, human rights, labor rights and local community needs.
4. AUDIENCES. You and leaders like you have to assess the diverse audiences that your organization has to reach to build buy-in and support and understanding of your ethical approaches. For example, imagine that you are initiating conversations in Germany with potential partner organizations and they look at you with some suspicion and start questioning the fact that you actually believe that, even as a non-profit institution, you could operate a large-scale retail space and generate very significant sales revenue. At the start of your conversation, even before they start raising questions, you can say that firstly you want to explain the guiding ethical principles upon which you run your organization and that everyone of your employees understands and adheres to. That kind of an opening statement builds trust – and that is crucial.
5. PROGRAMS. Ensuring understanding and buy-in among your many audiences of employees, partners and customers requires the development of effective target-directed educational programs. Securing support for a viable ethics code, here at home and abroad is not automatic. People need training. People need to know that they are encouraged to report misconduct when they see it.
6. MONITORING. The progress of good ethics programs needs to be monitored. Each program area is a potential source of vulnerability - today more than ever before. People you work with overseas, for example, must repeatedly be told that you don’t tolerate the payment of bribes, that enforcement of this and other core integrity policies is not an option, but an essential basis for further partnership. Programs that are not monitored fall by the wayside.
7. COMMUNICATING. Leaders need to communicate internally and externally about values and integrity on a consistent and continuing basis. The goal is clear: Leaders need to consistently build trust and confidence and tirelessly work to secure a reputation that makes Goodwill stand out.
I believe that as you pursue such a 7-point pro-active agenda you will find that your organizations here at home grow in strength and your confidence to expand abroad grows enormously.
Conclusion
In this world of great prospects and abundant human misery you – all of you together in this room – are a beacon of light and of hope. You have knowledge, commitment, dedication and inspiration that, when shared around our planet, will make an enormous humanitarian contribution.
Goodwill Industries International has 33 associate members in 22 countries outside the United States and the potential to grow rapidly and successfully in many countries. I am confident you will seek to expand further and share your skills with others to make Goodwill a proud and recognized global brand name.
Despite the critical issues of anti-Americanism and corruption, you can overcome the hurdles of succeeding in the global village. I think you must because there are opportunities in scores of foreign national markets for you to grow your organization. Moreover, the poorer peoples of the world need what you can offer.
Thank you.
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