Can Anything Be Done?

Given the amounts of money involved and the sprawling global landscape within which it occurs, it’s no surprise how much insider trading, bribery, deception, and just plain theft occurs in business. This is been augmented by the powerful role played by the financial industry, promoting mergers, acquisitions, restructurings, and divestments, without much interest in making more reliable goods or providing truly useful services. The sums of money involved are irresistible.

Recently, The Economist looking into the effort of containing bribery, noted that “the cost and complexity of investigations are spiraling beyond what is reasonable.” It cited the fact that Siemens, convicted of handing out bribes in developing countries, has “spent a staggering $3 billion on fines and internal investigations” while Walmart “will soon have spent $800m on fees and compliance stemming from a bribery investigation in Mexico.” (See “Daft on Graft.”)

It complained of “a ravenous ‘compliance industry’ of lawyers and forensic accountants” as well as “competing prosecutors” in different jurisdictions getting into the act and, in the process, inflating costs.

In his recent book, Too Big to Jail, Brandon Garrett notes that many efforts to get companies to reform themselves have inevitably backfired. Many regulators and watchdogs tried an approach of “rehabilitating” companies, based on a legal strategy developed with youthful, first-time offenders. The idea is that punishment is deferred, pending efforts by offenders to fix themselves.

Garret notes that some companies really try, but the record is mixed, to say the least. The essential problem is that changing a company’s culture is truly difficult, and even those that set out with good intentions have little idea of the complexities and resistances they will inevitably run into. Moreover, in only 25% of cases is any over-sight provided, and, even when monitors are charged to track compliance with reforms, seldom is any real effort made to check that the monitors are trained, adequately motivated or free from bias.

Fundamentally, the incentives for corruption usually remain in place. In the cases of Siemens and Walmart, western companies were dealing with officials in Africa and parts of Asia where bribery is an accepted way of doing business. No doubt, the company officials charged with managing their entry into those markets felt they had no choice but to go along with those culture’s practices. To be sure, they could have refused to engage in “corruption,” but almost certainly they would have been replaced by others less troubled by the unorthodox requirements of the job.

Corruption is not acceptable, but it will never be fully eradicated. Like the weather, it is something we have to understand and monitor if we are going to be able to cope effectively and limit the damage it can do. It requires constant vigilance, oversight, and, yes, money. It needs regulatory agencies and ambitious (even over zealous) prosecutors, expensive trials, and punishments that target the perpetrators.

Garrett notes the vital role of whistle blowers and informants in calling attention to corruption. Those who go public with their company’s crimes play an indispensible role, though often vilified and shunned by “loyal” co-workers. But he also notes the valuable effects of a simple hot-line to report ethical abuses, something many companies fail to offer.

Among other things we have to over come our own ambivalence about the battle. And he gives a nicely detailed account about how Siemens did finally engage in a massive and successful effort to change its culture. It replaced most of it top management and hired a former minister of finance in Germany to over see its efforts at reform.

Progress is not impossible – just very, very hard.