What beats cor­rup­tion?

Financial Mirror (Cyprus) - - FRONT PAGE -

Cor­rup­tion is a global scourge, some­times be­com­ing so deeply in­grained in coun­tries that com­bat­ing it seems im­pos­si­ble. In Jan­uary, Trans­parency In­ter­na­tional re­leased its an­nual Cor­rup­tion Per­cep­tions In­dex, not­ing that the prob­lem “re­mains a blight around the world.”

The In­ter­na­tional Mon­e­tary Fund, for ex­am­ple, has just warned Ukraine that its $40 bil­lion fi­nan­cial bailout could be cut off, ow­ing to fears that cor­rupt of­fi­cials will steal or squan­der the funds. And, dur­ing his re­cent visit to Mex­ico, Pope Fran­cis called on the coun­try’s lead­ers – sev­eral of whom (in­clud­ing the pres­i­dent and his wife) are em­broiled in con­flict-of-in­ter­est scan­dals – to fight en­demic cor­rup­tion

But change is pos­si­ble, as we have seen in the world of cor­po­rate gov­er­nance in the last cou­ple of years. Not even a decade ago, com­pa­nies were run from “black box” rooms con­trolled by a few peo­ple whose au­thor­ity seemed un­touch­able. Share­holder ac­tivists who thought oth­er­wise were re­garded as a nui­sance – so many dreamy do-good­ers who would never change any­thing. The only thing that would ever mat­ter, “re­al­ists” ar­gued, was re­turn on in­vest­ment, re­gard­less of the cost to peo­ple, the planet, or economies.

The re­al­ists were wrong. Since the be­gin­ning of the year, Berk­shire Hath­away’s War­ren Buf­fett and JPMor­gan Chase CEO Jamie Di­mon have been hold­ing meet­ings with other busi­ness lead­ers to dis­cuss pos­si­ble im­prove­ments in cor­po­rate gov­er­nance. On Fe­bru­ary 1, Lau­rence Fink, the chief ex­ec­u­tive of in­vest­ment firm Black­Rock, wrote a let­ter to some of the world’s largest com­pa­nies in which he is­sued a stern warn­ing against short-ter­mism and de­manded that com­pa­nies lay out clear strate­gic plans.

The fol­low­ing day, the cor­po­rate lawyer Martin Lip­ton, a long­stand­ing critic of share­holder ac­tivists, re­leased a memo en­ti­tled “The New Paradigm for Cor­po­rate Gov­er­nance.” Lip­ton recog­nised that long-term ac­tive in­vestors are here to stay and that com­pa­nies need to ad­here to higher en­vi­ron­men­tal, so­cial, and gov­er­nance stan­dards and place greater em­pha­sis on cor­po­rate so­cial re­spon­si­bil­ity.

Sim­i­larly, Nor­way’s sov­er­eign wealth fund re­cently an­nounced that it will hold com­pa­nies in its port­fo­lio ac­count­able for their hu­man rights records. And women, once told that gen­der par­ity in the board­room might be achieved within a gen­er­a­tion, will ben­e­fit from quota leg­is­la­tion adopted in the past year in Italy, Ger­many, and France.

None of this hap­pened overnight. Change is com­ing faster now, but only as the re­sult of mo­men­tum that has built over time. Whis­tle blow­ers would not be si­lenced, re­porters in­ves­ti­gated bad cor­po­rate ac­tors, and in­vestors were held ac­count­able for their choices (lead­ing them to act like Nor­way’s wealth fund). The cu­mu­la­tive, mu­tu­ally re­in­forc­ing ef­fect of th­ese and other fac­tors has brought about change that only re­cently seemed unimag­in­able.

Clearly, there is still a long way to go; no one is hang­ing up a “mis­sion ac­com­plished” ban­ner. But the process of change pro­vides a roadmap for the bat­tle against cor­rup­tion.

There was a time when only a few NGOs voiced con­cerns about cor­rup­tion, and ev­ery once in a while a cou­ple of brave jour­nal­ists man­aged to write about what they, and oth­ers, ob­served. Fight­ing cor­rup­tion seemed like a Sisyphean task, with lit­tle to show for hard, lonely work.

But those voices have mul­ti­plied be­com­ing a more pow­er­ful cho­rus.

Gov­ern­ments are pass­ing stricter leg­is­la­tion, like the UK Bribery Act 2010, and broad over­sight mech­a­nisms such as the United Na­tions Con­ven­tion against Cor­rup­tion en­cour­age fur­ther leg­is­la­tion and en­force­ment. Com­pa­nies are un­der gen­uine pres­sure to ad­here to anti-cor­rup­tion rules, and plenty of high-pro­file cases – from Wal­mart’s cor­rup­tion scan­dal in Mex­ico (in­volv­ing vi­o­la­tions of the US For­eign Cor­rupt Prac­tices Act) to those in the crosshairs of law en­force­ment now, such as Petro­bras, Rolls-Royce,


strength­ened, Teli­aSonora, and FIFA – should boost de­ter­rence.

And pub­lic of­fi­cials are be­ing pros­e­cuted as well. Gu­atemala’s for­mer pres­i­dent, Otto Pérez Molina, was forced to re­sign and was sub­se­quently jailed for cor­rup­tion. In­done­sia’s House Speaker Setya No­vanto was also forced to re­sign, af­ter he was caught at­tempt­ing to ex­tort money from a sub­sidiary of the min­ing com­pany Freeport-McMoRan. And In­done­sia’s Spe­cial Court for Cor­rup­tion Crimes has just sen­tenced the coun­try’s for­mer min­is­ter of en­ergy and min­eral re­sources, Jero Wacik, to four years in prison.

Jour­nal­ism has played a larger role as well. Re­porters have gained more knowl­edge and more out­lets to share their sto­ries, in­clud­ing so­cial me­dia. And they are cov­er­ing peo­ple who, in the face of bla­tant cor­rup­tion, are no longer will­ing to be silent. For ex­am­ple, in Moldova, Europe’s poor­est coun­try, a bil­lion-dol­lar bank­ing scan­dal has spurred a wave of pub­lic protests call­ing for fresh elec­tions.

This is the kind of mo­men­tum that sig­nals real change. In­deed, many govern­ment of­fi­cials are tak­ing prin­ci­pled stands. In Ukraine, Ai­varas Abro­mavi­cius, re­signed as Min­is­ter of Eco­nomic De­vel­op­ment and Trade, cit­ing high­level ob­struc­tion of anti-cor­rup­tion mea­sures.

And crack­downs on of­fi­cial cor­rup­tion do make a dif­fer­ence. Lux­ury-goods sellers around the world, such as Prada and LVMH, cite China’s curbs on bribery as a rea­son for weaker sales. Ear­lier in the year Pres­i­dent Xi Jin­ping said he wants China to be a coun­try where “no­body dares to be cor­rupt.” (Of course, China’s pol­icy on cor­rup­tion is not with­out wor­ry­ing political over­tones in it­self.)

Cor­rup­tion thrives wher­ever power, se­crecy, and re­pres­sion com­bine. It is un­done by civic mo­bil­i­sa­tion, sun­light, and vig­i­lant en­force­ment. Those who view it as in­tractable should take note of the sim­i­lar process that has be­gun to trans­form cor­po­rate gov­er­nance.

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