Corruption: Taking Responsibility

Corporate Responsibility

In its World Development Report 2005, the World Bank reported that more than half the companies in the Philippines had to bribe regulators just to get things done. In this context, "getting things done" refers to routine administrative processes like getting utilities connected, passing inspections, or securing permits from local government offices.

In survey after survey, both local and foreign companies continue to describe corruption as a serious roadblock to doing business in the Philippines. They also report that bribes consume a significant percentage of their total sales. Everyone seems happy to respond to these surveys, apparently thinking that if we talk about it enough maybe something will change. But what do the individual companies actually do about the the problem?

While most companies reject corruption in principle, very few have posted regulations that specifically prohibit corrupt acts. Many publish mission statements or company policies which address the issue, but these are rarely anything more than broad statements of philosophy. While demands for large under-the-table payoffs probably always get attention from senior executives, I doubt whether most CEO's are aware of the myriad of smaller demands that are handled routinely by their staff. Sometimes this is because they don't see, and sometimes because they don't want to see.

In day-to-day operations, company clerks and accountants routinely pay "fees", "consideration", and "for the boys" money to various local government offices or officials, to facilitate company needs. These payments are almost never demanded, but they are always expected, and junior company clerks often find themselves caught in the middle. A government official implies that a "fee" is required, and the employee knows that management needs the service in question. The employee knows the fee is not official, but also knows that the company tolerates the practice as a necessary evil. In most cases, the employee doesn't even feel the need to ask for guidance. It's just SOP.

This system has evolved into something way beyond extortion. Threats are almost never issued, or even implied. In fact, the whole process is more or less automatic. A new employee, unaware of the need for payment, may even be reminded by his co-workers, lest he forget to appease the official and risk some unspoken retribution against the company. A new accountant may ask "how much?", but never "why?" It's just SOP.

Without internal guidelines specifically prohibiting these acts, the employees that actually make a company run will continue to support corrupt behavior, even when it contradicts the company's declared anti-corruption "philosophy". Companies serious about resisting corruption must make their policy crystal-clear to employees, by issuing a regulation strictly prohibiting these payments. Employees need this clarity to give them the confidence to resist the overtures of corrupt city officials, and there should be no mixed signals from the top. By "mixed signals" I mean the company must not continue to unofficially tolerate the practice while posting a regulation that prohibits it. In that case, the safest thing for the employee to do is to quietly keep playing the game. All we've accomplished then is a little more paperwork.

The wording of an anti-corruption regulation is really pretty simple, and should not be hard for any law-abiding company to adopt:

· "It is prohibited for any company employee to make any payment to any government official or office, except published fees as prescribed by law."

· "It is prohibited to make any payment to any government official or office in cash."

· "All checks issued to any government office must be made payable to the institution that provided service. No check for such services may be issued in the name of any individual."

· "No payment may be made to any government office unless an official receipt is issued."

Any company can implement this regulation, which is really just a reinforcement of its commitment to obey the law. Obviously though, a single company making a lone stand may find itself on the losing end against corrupt government officials. Services may be refused or delayed, inspections may be failed, or permits denied. Corrupt officials hold considerable power.

But there is also strength in numbers, and a unified front can succeed where a lone resister could not. Business associations such as the Makati Business Club and the various Chambers of Commerce are perfect vehicles for coordinating simultaneous implementation among their members. The boycott aspect is a "make or break" element, and if enough companies suddenly start refusing to go along with the demand for under-the-table payments, the system will be forced to change.

As an odd kind of example, consider what has happened with airline hijackings since 9/11. After the heroic passenger uprising aboard Flight 93, and a few other celebrated incidents, we seem to have discovered that, if passengers simply refuse to cooperate, hijackers lose their power to take control. In the 3 years since that tragedy, I don't believe there has been a major hijacking anywhere in the world. The power of group resistance.

Finally, at the same time as these companies jointly implement the anti-corruption regulation, it would be helpful to hear a clear and public statement of support from local mayors and city councils. In many cases, bribes and extortion are wrapped within seemingly harmless acts of appreciation, tips, and gift-giving, and are often seen by all concerned as "just the way we do things". A public statement from a government official, worded as clearly as the regulation I just described, will carry weight even if it comes from a corrupt bureaucrat who has no wish to see the current system change.

Corporate policies and public statements are certainly not the cure-all for the kind of corruption described by the World Bank report, but they will definitely be a huge step in the right direction. Any problem must be defined before it can be attacked, and then the act must be specifically prohibited before it can be realistically defeated.

Reporting Corruption

As I said at the beginning, everybody seems delighted to answer surveys about corruption, and to complain about how much it hurts business, but there is a question I haven't yet seen on any survey: How many of the companies who complained of extortion in a survey actually reported the experience to the authorities?

Over the years, I have talked with many local and foreign businessmen in the Philippines, and almost every one has related some experience with under-the-table payoffs. Most were low-level payments to facilitate permits and the like, and a few talked about extortion at much higher levels, but for all the coffee-shop complaining, I have yet to meet anyone who has filed a report or an official complaint about extortion. In fairness, I do occasionally see newspaper reports of these complaints, but they represent a drop in the bucket compared to the "half the companies in the Philippines" mentioned in the surveys. Yes it's true that government doesn't do a very good job of telling people where or how to report corruption, and it's certainly true that exposing a demand for extortion may jeopardize the project, but it's also true that each of these companies have a legal responsibility to report criminal acts. The situation is infinitely more complicated than that, but it is important to understand that blind surveys do not trigger investigations or lead to arrests. Government must make a greater effort to educate individuals and businesses about their options for reporting corruption, and must instill confidence by demonstrating that complaints will be acted upon quickly. But the environment will not change unless official complaints are filed with the authorities.

In my view, this is the real meaning of "Corporate Responsibility".