In­tegrity and en­force­ment must be what coun­ter­acts a busi­ness case for cor­rup­tion

Irish Independent - - Business Week - Daniel Malan Daniel Malan is co-chair of the B20 task force on In­tegrity and Com­pli­ance. He is an as­sis­tant pro­fes­sor of busi­ness ethics at Trin­ity Col­lege Dublin

Fraud, bribery, ex­ploita­tion, and cor­rup­tion are all, re­gret­tably, still a fea­ture of do­ing busi­ness in 2020. While there is no doubt that ef­fec­tive en­force­ment has a cen­tral role to play in stamp­ing out cor­rup­tion, a key ques­tion for gov­ern­ments is how we also de­velop and main­tain a cul­ture of in­tegrity in busi­ness. This is a cul­ture which will en­cour­age and re­ward pos­i­tive be­hav­iour, as well as pre­vent­ing and pun­ish­ing mis­con­duct.

It is ex­actly fifty years ago that Mil­ton Fried­man de­clared in his fa­mous New York Times ar­ti­cle that those busi­ness­men (sic) who pro­mote de­sir­able so­cial ends are “preach­ing pure and unadul­ter­ated so­cial­ism”. What is less known is that, a lit­tle fur­ther down in that same ar­ti­cle, Fried­man con­tin­ues: “It may well be in the long-run in­ter­est of a cor­po­ra­tion that is a ma­jor em­ployer in a small com­mu­nity to de­vote re­sources to pro­vid­ing ameni­ties to that com­mu­nity or to im­prov­ing its gov­ern­ment.”

Fried­man here only fo­cuses on the busi­ness case for re­spon­si­ble cor­po­rate be­hav­iour, and it is en­tirely com­pat­i­ble with the more re­cent ap­proach to cre­ate shared value.

The car­rot of a busi­ness case coaxes busi­nesses into em­brac­ing – or at least adopt­ing – sus­tain­abil­ity and cor­po­rate so­cial re­spon­si­bil­ity prac­tices. By em­ploy­ing the busi­ness case, busi­ness ex­ec­u­tives who are not per­suaded by moral ar­gu­ments can be con­vinced to “do the right thing”.

In the case of cor­rup­tion, it is usu­ally the le­gal ar­gu­ment that is men­tioned first. Cor­rup­tion is il­le­gal, there­fore it is not even nec­es­sary to build a moral case. At­tempts to jus­tify cor­rup­tion from an eth­i­cal per­spec­tive usu­ally em­ploy rel­a­tivism – “ev­ery­body else is do­ing it” or “it is part of the cul­ture here” – and un­ravel fairly quickly when it is sub­jected to moral scru­tiny.

But what about the busi­ness case? It seems fair to say that those who are ac­tively in­volved in cor­rupt prac­tices usu­ally do it for the money.

This leads to what at first glance seems like a dis­crep­ancy, be­cause those who fight cor­rup­tion claim that cor­rup­tion costs money. In fact, ac­cord­ing to the United Na­tions the global econ­omy loses $3.6trn (€3.05trn) an­nu­ally to cor­rup­tion.

If it were as straight­for­ward as “if I steal from you, I gain and you lose”, it would mean that the money lost by some sim­ply ends up in the pock­ets of others. Quite at­trac­tive then, if it ends up in your pocket.

For­tu­nately, this is not a zero-sum game. Of course, we deal with the dif­fer­ent im­pacts on in­di­vid­u­als as op­posed to the econ­omy in gen­eral. But there are at least two ad­di­tional con­sid­er­a­tions for the cor­rupt them­selves. Firstly, if I steal and get caught and go to jail, my ini­tial gains sud­denly seem much less at­trac­tive. Ask David Drumm, former CEO of An­glo Ir­ish Bank in Ire­land, who is cur­rently serv­ing a sixyear prison sen­tence for fraud, and he will prob­a­bly agree.

Se­condly, if the col­lec­tive ac­tion of the cor­rupt drags the sys­tem down to such an ex­tent that there is noth­ing left to steal, even the cor­rupt will suf­fer in an ironic twist of fate.

It is no co­in­ci­dence that many of the most cor­rupt coun­tries in the world are also some of the poor­est. So­ma­lia has the du­bi­ous hon­our of fea­tur­ing at the bot­tom of both lists, ac­cord­ing to Trans­parency In­ter­na­tional and the World Bank.

This is not new in­for­ma­tion.

Cor­rupt in­di­vid­u­als also have risk man­age­ment skills, and there­fore choose their lo­ca­tions care­fully, look­ing for mar­kets where com­pli­ance and en­force­ment are weak, very of­ten in de­vel­op­ing coun­tries. And if there is noth­ing left to steal in one lo­ca­tion, there are al­ways new mar­kets to ex­plore, at least for now.

The sys­temic is­sue can be com­pared to the cur­rent de­mands by many re­spon­si­ble lead­ers for more reg­u­la­tion in the field of sus­tain­abil­ity. There was a time when com­pa­nies at the van­guard re­lied on vol­un­tary be­hav­iour alone to give them a com­pet­i­tive edge (the busi­ness case). How­ever, this ad­van­tage is in­creas­ingly be­ing eroded by the long-term ef­fects of un­sus­tain­able be­hav­iour.

Sim­i­larly, the busi­ness case for vol­un­tary re­spon­si­ble and eth­i­cal cor­po­rate be­hav­iour re­lies on the ben­e­fits that would ac­crue from in­creased rep­u­ta­tion as well as cus­tomer loy­alty and em­ployee pro­duc­tiv­ity, but is un­der­mined when the whole econ­omy suf­fers as a re­sult of en­demic cor­rup­tion.

Whether we talk about sus­tain­abil­ity or cor­rup­tion, the mes­sage is clear. Reg­u­la­tion and com­pli­ance are crit­i­cal, but not suf­fi­cient. Much of the dam­age that has been done to the global econ­omy over the last few decades was caused by un­eth­i­cal be­hav­iour, not only by il­le­gal be­hav­iour.

That is why the B20 task force on In­tegrity and Com­pli­ance, which I have the hon­our to co-chair, is rec­om­mend­ing to the G20 that a cul­ture of high in­tegrity should be pur­sued in the pub­lic and pri­vate sec­tors. This is com­ple­mented by rec­om­men­da­tions to lever­age emerg­ing tech­nolo­gies and en­hance in­tegrity and trans­parency in pub­lic pro­cure­ment. A cul­ture of in­tegrity im­plies sup­port for, and com­mit­ment to, fun­da­men­tal eth­i­cal val­ues such as hon­esty, ac­count­abil­ity and trans­parency, and th­ese prin­ci­ples ap­ply across all mar­kets and in­dus­try sec­tors.

All the num­bers in the world that il­lus­trate the dev­as­tat­ing global cost of cor­rup­tion will not de­ter a sin­gle cor­rupt per­son if they think they can get away with it. The fight against cor­rup­tion has to be multi-faceted. Com­bin­ing a cul­ture of in­tegrity with ef­fec­tive en­force­ment can help to ex­tin­guish the busi­ness case for cor­rup­tion, even at the in­di­vid­ual level.

Car­rot of a busi­ness case coxes firms into sus­tain­able prac­tices

Reg­u­la­tion and com­pli­ance are crit­i­cal, but are not suf­fi­cient

Bribery: Cor­rupt in­di­vid­u­als seek out mar­kets where com­pli­ance and en­force­ment of reg­u­la­tions are weak

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