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".

Setting The Example

From my favorite streetside coffeeshop I get the opportunity to watch people at different times of the day and night, and one group I like to watch more than any other is the police. As a former policeman myself, I have a keen interest in both their behavior and their effectiveness, but as a long-time resident of the Philippines, with a natural desire to live in a safe and peaceful environment, I have to ask a question: Why does this country's lead law enforcement agency do such a poor job of setting the example for the rest of us?

I'm talking about the simple things, like following traffic rules. The law applies to everyone, but even more so to the police. No matter how strictly the enforcement, the public will never obey laws that the police themselves ignore. This concept is one of the cornerstones of law enforcement, and must not be underestimated in the drive to achieve a self-disciplined society. A policeman, who runs a red light without proper justification, or indeed without using the appropriate emergency equipment, is just as much a lawbreaker as any ordinary citizen. And the fact that the PNP has to spend money to maintain hundreds of cars doesn't make it any more legal to drive one without headlights than the average citizen who owns only one.

Many policemen mistakenly believe that their duties allow them to disobey laws whenever it's convenient to do so. Police patrol cars are frequently seen going the wrong way down a one-way street, cruising casually through a red light, or driving at night without any lights. Policeman on motorcycles behave almost like kids on bicycles, and rarely obey any traffic laws at all. In fact, most days I probably see more police motorcycles driving on the sidewalk than on the regular street. Private security agencies, while not officially law enforcement bodies, are even worse about this, with almost all of their vehicles moving around on the public streets and sidewalks, against the flow of traffic and with all their lights turned off.

The Philippine National Police likes to talk the talk, and claims to be making great strides toward professionalizing the force. To be fair, they have made a lot of improvement in recent years, but real change will only come when the individual policeman can be seen routinely obeying the laws of the land. All the laws. At first it will take strict supervision, and quite a few reprimands. But in a truly just society, the laws must apply to everyone. And as I said before, how can government enforce laws that its own people don't obey?

This may seem like a minor nuts-and-bolts issue, but the truth is, the nuts-and-bolts are where the country needs the most work.

Corruption: The Depth of the Problem

Corruption exists in every country of the world. In some places it is a minor nuisance that can barely be measured. In others, corruption is deeply rooted in every aspect of daily life. Sadly, the Philippines falls squarely into the second category. Business organizations and international surveys routinely rank the Philippines among the world's most corrupt countries. In fact, surveys such as Transparency International's "Corruption Perception Index" seem to show that the Philippines is getting steadily worse. Government's response to these reports typically starts with a declaration that they are "unfair" and that "we are doing our best". In practical terms though, statements like these and others like "we have the will" and "we are committed" are meaningless. The technical procedures for preventing corruption are simple and straight-forward, but they require stepping on high-placed toes, because many of those high-placed toes are involved, directly or indirectly, in corrupt activities. Despite arguments to the contrary, the inability of the government to control corruption is not a result of "we can't catch them". It's a result of "we're not really going after them".

The biggest challenge in any anti-corruption campaign in the Philippines is the system itself. Networks of business, social, and family relationships discourage even the authorities from making accusations against anyone with just a little power. A telephone call to a friend can stop an investigation against you or someone you know. Sometimes even that phone call isn't necessary, since the authorities may be hesitant to go after a person known to have connections. I'm not talking about "the authorities" as an institution. I'm talking about the individual people in government who actually make things work. There is a big difference between the two.

In fairness to the Philippine Government, there does seem to be a new attitude taking hold, driven by a flood of international reports and surveys which paint a very gloomy future for the country. The senior leadership, at least, seems to understand that the situation cannot continue as it is. A pretty intensive campaign against corruption is ongoing, and it seems to be reaching all the way to the lower levels, where the problem is most entrenched. The question is, will this just be another brushfire effort, which burns hot but burns out fast, or will we actually see some permanent change? Only time will tell.

A quick glance at the Philippines reveals a structure very similar to other governments around the world, with laws, regulations and safeguards enough to make the system run properly. But, on a day-to-day basis, the people who actually implement those procedures operate much more informally. This is exactly where government breaks down and a purely network-based organization takes over. This shadow structure defines both the implementation and the enforcement of Philippine Government processes, from the municipal to the national level. Regardless of the level, the reason this informal system thrives is simple. I've said it before: we routinely do not follow (or enforce!) laws, rules, regulations, or procedures. This situation is not unique to the Philippines, and in fact, many of the things I will describe here are characteristic of governments and government officials around the world. The differences between corruption in one country and corruption in another are differences of degree rather than design.

In addition, there is a common feeling among many government officials, a view which seems to be shared by many civilians as well, that profiting from corruption is not really wrong, and is in fact an entitlement of public office. A survey last year by the Asian Institute of Management reported that "...some executives already regard behavior or actions commonly perceived as wrong as 'wrong only sometimes.' Moreover, eight out of 100 executives believed it was not always wrong to do something that was inherently wrong, as long as it was for friendship, position, or seniority." [Business World, 6 July 04] Personally, I suspect that many of those who responded to the surveys were not completely truthful in their answers. I think the numbers are really much higher.

If this really is the general attitude, then it is unlikely that citizens, either in or out of government, will ever really join the fight against corruption until they believe that it is in their interest to do so. To change that mindset, it is necessary to personalize the effects of corruption, rather than simply trying to preach "This is right and this is wrong". Everyone agrees that corruption in general is a bad thing, but the specific practices that make up corruption are not always seen in such a bad light. It may be more effective to emphasize the harmful impact of those individual acts, by constantly exposing people to the ways that corruption affects them personally. The idea is to eventually make such behavior distasteful, and to then bring social pressure to bear on corrupt officials at all levels. Changing the way people view corruption must be the goal of a very long-term, but very necessary, public education campaign.

The statistics of corruption are reported all too often, but they bear repeating. According to the Manila-based group Procurement Watch, 1/5 of the national budget and 15% of the cost of all government contracts is lost to corruption every year. 1/5 of the national budget! Put another way, that means we lose an entire year's budget every 5 years. Granted, those figures are only estimates, and it's probably not possible to determine the actual amounts with any certainty, but whatever the numbers, the bottom line is this: Filipinos are stealing the food right out of the mouths of Filipinos. And let's make something absolutely clear, right from the beginning. These surveys and reports always use phrases like "lost to corruption" and "unaccounted for" as if money had just evaporated because someone forgot to put the lid on the bottle. The reality is, corruption is theft, plain and simple. When a citizen is asked to pay an additional "fee" to expedite his request for a government service, that money goes straight into the pocket of the clerk on the other side of the window. It's not a "service fee", no matter what he says. That government employee is a thief, and he has just stolen money from the citizen.

Corruption is not just an aspect of Philippine culture; it is entangled in the very fabric of daily life. The average Filipino, rich or poor, considers under-the-table payments to be a fact of life. The poor pay because they have no choice, constantly borrowing money to get through the red tape of life. The middle class and the wealthy also pay, because it's a convenient way to bypass bureaucracy and because it is the only way to compete with everyone else who pays. When dealing with Government, the customer finds obstacles and delays at every turn, leading him to look for an easier way through the process. Juan Dela Cruz (John Q. Public, for the American reader), faced with these seemingly unending bureaucratic roadblocks, will eventually start to think "there must be a way to cut through all this red tape!" And as soon as he asks that question, the clerk behind the counter offers the answer. In fact, much of the procedure and delay involved in obtaining any government service seems almost intentionally designed to encourage the customer to ask that very question. “Designed” may be the wrong word, but procedures have certainly been allowed to evolve in that direction.

These payments are not a rare occurrence. It is my opinion, based on countless conversations with Filipinos and foreigners alike, that the many surveys and statistics which describe the extent of corruption in the Philippines don't even scratch the surface of the problem. Not even the honest corruption-fighters want to admit just how deep it really goes.

Corruption exists at every level of society, in both the government and private sectors, at the national level and at the Barangay. In the world of government contracting, for example, the popular term is "SOP". Traditionally, that abbreviation stands for "Standard Operating Procedure", a term that describes something so commonly done that you don't even have to talk about it. In the Philippines, SOP means the kickback that a government official automatically requires before any contracted project under his jurisdiction can begin. The amount of this payment is typically 15 - 20% of the budget for the entire project, although it is sometimes much higher. SOP usually has to be paid up front and, depending on the size and scope of the project, the blessing of several officials may be needed. In cases like that, the 20% kickback is not always shared among the wolves. Rather, the winning company often has to pay each official separately, sometimes jacking up the total cost of the project by 60% or more. Those with government contracting experience already know the SOP of particular officials, so the subject never even has to be discussed. Hence the term "Standard Operating Procedure". We'll come back to this a bit later, but for now it's important to recognize the fact that corrupt activity is usually known to everyone, and protected with a wink and a nod.

The fact that most people don’t see anything wrong with corruption means that new laws or harsher penalties will not have a significant impact on the problem. The real answer lies in “corruption-proofing” the system, by implementing procedures that make it physically impossible to complete a corrupt act.

Conventional wisdom says that government must prosecute a few "big fish" if it wants to prove it is serious about fighting corruption. This is certainly true, from the all-important public relations angle. But it is also true that this is the one act government finds very difficult to do, for a variety of reasons. While I am not advocating letting the "big fish" get away, I do not believe they are at the heart of the problem. Corruption is tolerated at the top, and there is no doubt that those at the top benefit most, but the self-sustaining nature of the problem comes from the fact that it permeates all operations at the lower-levels. A permanent cure will only come when we clean up the system at the bottom. In fact, we do that by enforcing procedures, and by prosecuting violators of those procedures. Untouchable corrupt senior officials will find it much more difficult to steal government money if the junior employees below them are afraid to break the rules.

While there are certainly some officials who steal millions of pesos through corruption, the real problem is more like shoplifting in a local convenience store. On its own, each theft may be only a pack of candy or a bottle of perfume, and we may even feel sympathy for the "poor" rogue. But over a year, and across the entire chain of stores, those seemingly harmless thefts can add up to millions. That's why, in many countries, every shoplifter is prosecuted, even if they only took a pack of gum. This is exactly what is going on in the Philippines, and this is exactly how we have to solve the problem.

The Way It's Supposed To Work

Wise governments pass and enforce laws for the common good. Traffic rules for example, limit how fast a car can go, where a driver can and cannot park, and set standards for licensing qualified drivers. Without traffic laws, cars would race down the road at dangerous speeds, parked vehicles would block roadways, and people who don't know the rules of the road would drive passenger vehicles. But, despite the fact that the Philippines already has a complete set of laws and regulations governing traffic, that seems to be the exact situation on the nations roadways today.

In mature societies, law enforcement is relatively easy. The average citizen obeys the law on his own, and needs only an occasional reminder when he strays off the path. As a result of this self-policing culture, authorities are left free to focus their attention and resources on the few who break the law by choice. The result is a condition of general peace and order. Citizens expect things to work in a certain way, because they know that the law requires it. And more importantly, they find that things do work as expected, because laws are enforced.

Obviously though, the Philippines has not reached the point where laws alone inspire discipline, a word which really means "doing the right thing, even when no one is looking". I’m using traffic to illustrate a point, but the idea is the same whether the subject is traffic, tax collection, or issuing a building permit. Laws not enforced are nothing more than words on paper. Some government officials, again describing Metro Manila traffic, complain about what an impossible challenge it is because "drivers won't cooperate". Here's a piece of advice for those leaders: Filipinos drive the way they do because there is no one stopping them. All the written laws, all the posted signs, and all the penalties, are useless unless a policeman stands in the middle of the street, points directly at a driver, blows his whistle sharply, and says "you cannot do that". If the driver still chooses to break the rule, there must be a consequence -- every time. And if the enforcer won't do the job, he must be replaced -- every time.

So the place we have to start is with the enforcers. And I don't just mean the police.

The Mother of All Problems

In the Philippines, a general failure to enforce laws, regulations, rules, and procedures has created an almost totally “do as you please” environment, which in turn is the root cause of almost every problem this country faces today.

Government will argue that there is a working enforcement system, and that statistics show that the system is successful, but the reality is, the laws that are supposed to keep the country running smoothly, from traffic control to tax collection to simple procedures for handling paperwork, are ignored by citizens and enforcers alike. Whether in the most upscale Metro Manila neighborhood or on the remote island of Jolo, the chaos that passes for peace and order is not a result of uncontrollable elements – but rather a result of UNCONTROLLED elements. The situation is no more complicated than that.

Citizens often choose to obey or ignore a particular law based solely on whether it is convenient or in their interest to do so. The presence of a police officer does not motivate people to obey the law, and in fact, there is a general sense that the authorities are among the worst law-breakers. For the most part, I’m referring to minor crimes and violations, but these infractions, ignored by those who are charged with enforcing order, contribute to a general disrespect for the Rule of Law. Taxis openly refuse to carry passengers, in plain sight of a nearby policeman. Pimps and prostitutes not only solicit customers in plain sight, they often flirt with the cop on the beat while they wait. And of course, police mobile patrols violate every traffic law in the book, with absolutely no regard for the example they are setting. And on the administrative side, all it takes is a friend (or a little money) to get your documents placed on top of the stack at many government offices.

All these things contribute to the “why should I follow the rules” attitude among the general public. Despite government’s strong belief to the contrary, that attitude is not the cause of the country’s problems – it's just a symptom. And as with any illness, the only way to effectively and permanently cure the disease is to treat the cause.

The current administration talks about building a “Strong Republic”. I agree wholeheartedly, but I suggest that we focus our attention first on establishing a “Strong Foundation”. Foundation-level fundamentals, rather than macroeconomics, are where the country is weak. Fundamentals like enforcing the core rules and procedures that make any system work properly. Even a government with no money can dramatically improve the quality of its service, and provide that improved service to more people, by the simple act of enforcing its own laws.

And by “laws” I mean the whole range of rules, procedures, policies, regulations, directives, and all the other words that really just mean “you must do this”. These guidelines exist to ensure order and fair treatment for all. But in the Philippines, as in many underdeveloped countries, we use them as bargaining chips to gain favor or profit.

This one point is the single cause of almost all other problems this country faces. We will dig deeper into this idea as time goes on.