It doesn’t take a government official to tango… or to corrupt

It takes two to tango and to corrupt, but none of these activities necessarily require a government official to be involved.

Corruption scandals reported in the media usually involve a company, presented as the “corruptor”, and some government official, presented as the “corruptee”. Under this classic scheme, the company is usually the bad guy and the citizens of the country where the action takes place are the victims (for instance because taxpayer’s money is misspent or development aid misappropriated). The public, however, hardly ever hears about the most common of corruption schemes, in which companies are themselves the victims of a collusion between one of their employees (or agent) and a third party.

I am referring here to a risk every company faces on a daily basis, irrespective of the industry it operates in or of whether or not it interacts with government agencies: the risk of losing money as a result of corrupt transactions. I am not sure each of these individual transactions qualifies as a corruption “scandal”, worthy of news headlines, but such transactions, when they occur, are nonetheless corrupt ones and their impact on companies should be (and, in many cases, already is) a daily preoccupation for leaders in the private sector.

Indeed, the opportunity, or at least the temptation, to corrupt exists wherever a business transaction occurs between two private sector entities. A government official does not have to take part to the transaction to create the risk of corruption.

In addition, such a risk exists irrespective of the amount at stake. The amount of the bribe is generally a fraction of the amount of the transaction. A small transaction simply carries the risk of small bribe in absolute value, with a proportional impact on the cost to the ultimate payer.

Moreover, the risk of corruption is not limited to bribery but also covers less straightforward situations such as conflicts of interest (i.e. situations where the payment of a bribe in the form of money or gifts is replaced by the existence of an undisclosed personal relationship which both parties have in mind when engaging in the transaction). Such situations are in fact much more likely to occur in the context of transactions of smaller value, for which the decision making power is concentrated in the hands of a local employee. They will occur less frequently in large scale project which are subject to much more scrutiny and collegiality of decision.

As a result, it is worth reminding that fighting corruption is a concern, a challenge and a necessity for any private sector organization.

1. Fighting corruption is a concern for any private sector organization

The risk referred to here is the risk of any private sector company (or any private sector organization for that matter) to spend money in a less than optimal way (and potentially in a wasteful way) because of corrupt influence.

It is common place to say that “you need to spend money to make money”. That sentence sums up what any and all companies do each and every day: they spend their money (in hope that they will eventually cash in more than they cash out). Nothing is free to a company. Everything and anything they do cost them money. Unlike a natural person, a company cannot even think for free, they pay people, employees or consultants, to do the thinking for them.

As a result, any activity conducted by a company ends up in some money being paid in one form or the other (salary, expense, investment, etc.).

And, of course, for each budget line of spending, several other companies or individuals will line up and compete for a piece of the business.

Just as in any competition, it may happen that some are tempted to compete in an unfair way by attempting to corrupt whoever is in charge of making a decision.

The pressure to act in a corrupt way can exist in the context of purchasing large pieces of industrial equipment or awarding year-end bonuses. In both cases, the decision should theoretically be made based on cost-effectiveness and performance consideration. The risk always exists that whoever is in charge of making this decision, intentionally makes a sub-optimal choice (or, even worse, a counter-productive choice) for the organization.

So, logically, companies should protect themselves from corruption to make sure their money is spent efficiently.

But it is not easy.

2. Fighting corruption is a challenge for organizations, especially for large, multinational ones

Indeed, the main prevention tool against corruption is an organizational culture of anti-corruption, i.e. a collective understanding of what is an acceptable way of conducting business and what is not. It is obvious to me that creating such a culture in a multinational organization is harder than in a government agency.

In a government agency, most employees share the same national cultural background. There is a higher level of cultural homogeneity, consistency. People tend to give similar meaning to words like “integrity”, “business ethics”, “corruption”.

Of course, cultural diversity does exist within a single country, especially if such country is large and/or linguistically diverse for instance. But, nevertheless cultural consistency is always harder to achieve across the board of multiple nationalities working together across the planet. Most words, even translated into the local language, will have a different meaning for a French, a Norwegian, a Moroccan, a Chinese and a Brazilian person.

When a CEO says in his/her company’s Code of Conduct that he/she expects people to behave with integrity, it can’t be enough. Because not everyone understands “integrity” in the same way. It does not mean that some people understand that corruption is allowed. It just means that what is perceived as corruption in one part of the globe is not perceived as such in another.

And if everyone does not understand things in the same way, then corruption is not effectively prevented. If the CEO thinks he/she has drawn the line between what is acceptable and what is not, just by using words like “integrity” and “corruption”, he/she may be wrong because the line may be positioned in a completely different way for employees with a different cultural background. So, fighting corruption is hard… It is time and resource consuming. It requires a good understanding of the various cultural backgrounds where a given organization operates. It takes a lot of efforts in policy shaping, communication, training, internal control implementation, etc.

So is it worth the effort? Is it an effective use of company resources?

I do believe that it is.

3. Fighting corruption is a necessity

By fighting corruption I of course mean fighting all types of corruption any private sector entity might be involved in: not only corruption occurring at the expense of the company, but also corruption perpetrated for the immediate benefit of the company, when the bribe is intentionally paid by the company itself.

Of course, fighting corruption will mitigate the risk of prosecution or exposure to liability. But this is not even my point. Law firms make a much better case in making this argument than I could ever make myself.

I am not even saying that it is necessary because it is the “moral” or the “right” thing to do. I leave this very interesting argument to philosophers and scholars much more erudite than I am on this aspect of the subject.

It is simply my contention that corruption is bad for business and that corruption cannot be selectively tolerated by an organization.

Again, it all comes back to the organization’s culture. The identification of what schemes should be considered as corrupt and prohibited requires some clarity in the management’s actions and words.

Managers cannot tell their teams: “it is ok to pay bribes in order to get business but it is not ok to take bribes and misallocate the company’s funds”.

Such a schizophrenic culture cannot be sustained, at least not very long.

In the long run, the confusion created by such inconsistency will authorize all types of rationalization of individual decisions. Employees will start thinking: “if is okay to break the rules for the benefit of the company, then it is okay to break them for my own benefit as well”.

In addition, and that may be the most important point, corruption cannot exist in the open. It is necessarily hidden.

This means that a given company’s code of conduct cannot contain the following statement: “we tolerate corruption as long as it is in the best interests of the Company”.

If a code of conduct exists, it must say something like: “corruption in any way, shape or form is unacceptable”.

However, companies that do not want their code of conduct to stand in the way of business opportunities can always let their employee know, “off the record”, that they can do whatever they have to do to meet their targets… but they should do it “quietly” (i.e. not officially report that they paid bribes to win contracts).

What is bound to happen wherever organizations create opportunities for unreported activities or foster such “I-don’t-want-to-know” attitudes is that employees start taking advantage of this lack of transparency for their own benefit. People will start consistently reporting inaccurate information about the state of the company and its relationship with its customers. They will start misrepresenting the situation locally to hide losses or embezzlement by the local executives. Local management will hide from the headquarters that they are destroying the reputation of the company on the local market.

Lastly, allowing the company to gain business through corruption is an admission that the products or services sold by the company are not good enough… If people need to be bribed to buy your products, how good can they be? A company that allows itself to win contracts through bribes cannot at the same time foster a culture of excellence and fair competition among its people. In the most extreme situations, such companies will ultimately lose their sense of purpose and collapse under their own weight, if not stopped before by a government investigation (many examples exist one way or the other).

So yes, actively fighting corruption is worthy of the effort, even if it is complex (and not an exact science), even if it means missing out on business opportunities that others will seize. Because, on a daily basis, it will help mitigating the risk for the company itself to be victim of corrupt dealings and, in the long run, it will allow the company to develop a culture of accountability, of transparency, a sense of pride and belonging among its people.