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LEAD STORY

Volume 2 Number 9

Corruption: Public Enemy Number One

01 October 1989

A string of scandals have gained international limelight, backed up by strong sub-plots of take-over crookery and insider-dealing.
Recruit, Boesky, Bofors, Guinness – a string of scandals have gained international limelight, backed up by strong sub-plots of take-over crookery and insider-dealing. The former Chairman of the Hong Kong Stock Exchange is arrested, Delhi house-buyers are routinely asked to pay half the price in black money, and another Japanese Prime Minister resigns in a corruption scandal.

The Communist world fares no better. Accusations of profiteering fly at Politburo level in Moscow, an old comrade of Fidel Castro is executed for drug running and students in Beijing are mown down while protesting about `rottenness'.

Small wonder that for millions of people from Beijing to Bogota corruption is public enemy number one.

Is it realistic to expect an improvement?

Unfortunately one can't boil such a complex problem down to a universally acceptable list of dos and don'ts. Almost everyone recoils from the rich and powerful cheating to become even more rich and powerful. Fewer get angry about the small man cheating the big. And when it comes to the audacious trickery of some who live under despotic regimes, it is easier to applaud than disapprove.

Equally, many businessmen feel they are not corrupt, but the victims of extortion - `Pay me money or I will make it impossible for you to do business around here.' And cultures vary. In some parts of the world a seasonal gift to a client might be highly questionable, in others a vital courtesy.

Where do you draw the line? A useful rule of thumb could be that any practice that, from the point of view of morality, cannot be openly acknowledged is likely to have something wrong with it.

Perhaps such considerations applied at BHP, Australia's largest company. After oil was discovered in the Bass Strait, BHP overcharged their customers for a year due to a laboratory error. When this was discovered it would have been easy, and perfectly legal, to do nothing. But BHP's Managing Director, Sir James McNeil, ordered the payment of full refunds. `I am more interested in the good name of BHP than in A$10 million,' he said.

The incident was not publicized. Such cases rarely are, though we read daily about scandals. Some like BHP do not want to blow their own trumpet. Others don't want it known that there was ever a problem. Asking a person what he or she has done about bribery is like asking a man if he has stopped beating his wife.

The result is a one-sided picture of industry. A survey in 1988 by the Market Research Society in the UK showed that the man in the street strongly distrusted big businessmen. Only national newspapers were trusted less.

The US multinational ITT had a bad press in the Seventies, but few realize how much things have changed since then.

In April 1974, following an attempt at blackmail against the company, Howard Aibel, ITT's General Counsel and current Executive Vice-President, led an investigation. He found `instances of covert arrangements made by some ITT companies, primarily those " operating abroad... payments... turned over to government officials in a position to influence the award of business'.

Aibel's report `provoked intense discussion, to say the least' among senior management. `Each of the senior executives,' he relates, `affirmed that doing business in this way was contrary to his own personal code of ethics.' And ITT's top management also concluded they would risk far more than they might gain by going on making 'questionable payments'. After consultation with line-managers, they drew up a policy which, among other things, `forbids acceptance of gifts from competitors, customers or suppliers'.

Under the watchful eye of a boardroom committee ITT's 280,000 employees worldwide were told of the new code and top management's determination to apply it. 'As it has become known that people have been fired, the number of deviations (from the code) has diminished,' states Aibel.

He believes that changes of structure and policy can `enhance ethical standards of conduct', but adds, `In the final analysis it is the individual who will determine the ethical quality of business conduct.'

Many other organizations use codes of conduct. Police in London, for instance, can accept a cup of tea on someone's doorstep but must not go inside for a meal. Such codes help create a climate favourable to those who want to be honest, which means most people.

Some structures in business, economics or politics are known from hard experience to be fertile soil for corruption. For example, underpaid public servants in control of multi-million budgets will always be subject to great pressure.

Indiscriminate subsidies are another danger area. According to EEC figures the 750 residents of the Vatican have each been eating some 16kg of veal per week. Much more likely is that EEC meat traders have been registering fictitious `exports' to the Vatican in order to claim lucrative export subsidies.

Equally suspect is a management philosophy that measures everything by short-term financial results. Many a young recruit is told, `Whatever the company code says, the quarterly returns are what really count. Go ahead and falsify them.'

Less attractive to cheat
Nearly all countries legislate against the bribing of their own officials, though only the USA - thanks to President Jimmy Carter - outlaws the bribing of other people's. In some countries, certain bribes to foreign officials can be counted as tax-deductible business expenses - a situation which is being fought in Norway by a citizens' movement.

Most cases of corruption come to light simply because the law has been broken. The exposure of Ivan Boesky, the Guinness affair and Recruit are all examples of legal systems in the hands of honest and determined men reacting against wrong-doing. Such actions make it less attractive to cheat.

The same can be said of Zimbabwe where President Mugabe appointed the independent Sandura Commission whose investigations into corruption led to the dismissal of some of his own cabinet.

Exposure of a problem was enough to provoke a determined clean-up operation in Newcastle upon Tyne, England.

During the late Sixties and early Seventies there was considerable urban reconstruction in the region, planned and financed by local authorities. Few realized that anything was wrong until an architect, John Poulson, went bankrupt. In his books were found unexplained payments of £175,000 to T Dan Smith, leader of Newcastle City Council, a `city boss' with a long record of public service. A well-oiled mechanism for corruptly awarding construction contracts was uncovered. Within months, Smith and some of his associates were serving long prison sentences.

Theresa Russell was a much respected Newcastle City Councillor throughout the period, as she still is. In 1966 she was Lord Mayor. She came through the scandal with her reputation enhanced and has been decorated for services to the city.

She declines to discuss all she knows - talking behind people's backs would be `contrary to my Jewish faith', she explains. But she is characteristically forthright about what it takes to steer clear of corruption. `You've got to feel you are answerable to God,' she says. `Otherwise you can behave as you like. No one else sees.'

When exposure alone is not enough to change the culture of a corrupt organization, an aroused public opinion may help. In Queensland, Australia, a state which has suffered a series of corruption scandals, citizens have taken this a step farther with the launching of a charter, Our decision for a corruption-free Queensland. Its basis is that people cannot expect to live in a corruptionfree society if they are not prepared to make a personal stand themselves.

But some corruption rings are hard to break. Those on the inside share an overriding priority to prevent the truth from being known, even when this is in direct conflict with the interests of their organization or country. Often they will viciously attack anyone who threatens to uncover what is really going on.

In the worst situations few individuals can hope to stand frontally against the forces of corruption and win. Their resistance has to be more akin to guerrilla warfare.

Occasionally they pay a high price. An executive with a well-known Hong Kong company refused to pay bribes. Informed that it was a condition of employment, and unable to see a way round it, he resigned. It took him many months to establish his own small business.

Others take great risks and find unexpected allies. Last year an Egyptian doctor was involved in plans for building a new hospital in Cairo. Several companies wanted the contract and assumed that large bribes were in order. When the doctor let it be known he would neither give nor receive any, he found
one of the firms bidding, John Laing plc, keen to work the same way. Despite intrigues and illicit payments available from some competitors, Laing won the contract.

Fifteen years ago a young East-African Asian took up a post as a junior partner in an accountancy firm. He was determined to prove that honesty was possible in that setting. His family was behind him, and he won the backing of his partners. There followed `five or six hair-raising years'.

`It is normal in the profession to give gifts,' he told me. `The giver wants the receiver to overlook a few items in the balance sheet. The state loses tax revenue. We decided we could not join in.'

The firm nearly went out of business as many clients left, saying they did not want to be guinea pigs. And the staff had to endure hassle and lower incomes. `Many times we asked ourselves if it wouldn't be wiser to concede,' he recalled. `Success isn't guaranteed in the path of living straight. Often the issues are not clear cut. Is corruption justified if survival is at stake - your own or a client's?'

It is usually fear which overshadows one's convictions, the businessman went on. `But corruption is corroding the foundations of society. It is not a private problem.' Having asked himself what he would be able to offer to coming generations if he gave up his stand, he decided `to give fears of the outcome to God'.

Some clients who had succumbed to the `giving' environment were prosecuted. Later, some of these came back to his firm.

`We are now doing well, mainly due to our reputation for dealing straight,' he told me. `New partners know what they are coming into. It is part of the attraction of the job. Some big companies have stuck their necks out like us. But the battle is not over. It confronts you every day.'