Mario Ramirez, MAAPPS // Feb 20, 2015
I would like to share some insights about an excellent article I read a few days ago. The article is about “confronting corruption[1]” and was released by the McKinsey Quarterly magazine January 2015. It was written by Ravi Venkatesan former chairman of Microsoft India and current member of several boards of directors in a variety of important multinational companies. The SME (Society of Mining, Metallurgy and exploration) LinkedIn group had some discussion about it and I found it interesting given our learnings on transparency. The article talks about how multinational companies dealing with businesses abroad face difficult dilemmas regarding corruption and fraud and how they can also overcome those dilemmas.
The article starts off by pointing out a couple factors driving the corruption dilemma, one being the preexistent corruption history of the host countries where a company finds new opportunities for growth, and the other is the previous wrongdoings of corporations in local and international grounds living also a negative impact for future projects. However, on the latest factor, the author believes that the hardest issues to fix are not usually the ethical multinationals scandals hitting media headlines, but the quiet killers of ethical business practices which come in at least four different shapes; bribes, speed money, extortion and employee fraud. The author suggest that albeit corruption and fraud, companies can operate ethically in new markets. However, In order for a company to operate ethically there needs to be sound internal competence, a robust culture, and an excellent leadership.
Some basics that are usually overlooked by companies is the design and implementation of clear policies and procedures to hold employees accountable for wrongdoings involving corruption in the company, especially top management including the company’s CEO. In a survey conducted by EY it was found that about 65% of companies didn’t take actions against workers who were involved in inappropriate activities, also that 1 in 5 employees did not know anything about policies in place or were unaware of such policies in case they existed. Another poll ran by Kroll also stated that less than 33% of respondents had their foreign employees trained about company internal code of conduct, the US FCPA (foreign corrupt practices act) or UK bribery act. Those survey results suggest there is a need for a better communication channel within the company regarding training and deployment of internal code of conduct or federal laws. Companies with interest in foreign countries should have programs to continuously certified new employees and recertified current ones regarding compliance to rules, and regulations dictated by its internal code of conduct or federal laws and regulations.
Another aspect to keep in mind is the importance of investing in key employees, such as managers, finance, internal audits and legal stuff. In foreign grounds those workers are usually the primary contacts to other stakeholders and they need to be thoroughly aware of compliance procedures to act accordingly. It is also important for those people to be experts in their field and understand the country laws to eliminate the probability of falling into the hands of unscrupulous individuals. Compliance training and continuous reviews on Compliance are very important because it helps the company stay on track. Top management need to continuously “preach” about compliance to his or her personnel and do routine checkups on this knowledge. Very few companies though seem to spend good attention to this subject which leads them to face problems in the future especially when those problems are at their doorstep, compromising in many cases the company’s integrity and reputation.
Strong leadership is also very fundamental for a company in the matter of compliance. It is leadership who sets the tone, pace and the bar. As leadership establishes zero tolerance in the organization regarding corruption practices and makes clear policies, procedures and programs the company will follow. Top managers cannot always be involved in every single detail. However, as H. Mintzberg cited a quote from Matsushita in his book Management[2] “big things and little things are my job (referring to managers). Middle level arrangements can be delegated”. Top management is responsible for setting the bar high up but it is also responsible to ensure everyone follows, everything in the middle can be delegated. As a final note I would like to quote, as the writer of the article did, some words from the head of an IT company who addressed his employees about standing tall against corruption. “We ask our people to persist and prevail, not to take shortcuts. The message is simple: we will work alongside you. We will not hold it against you if a project gets delayed or we lose money; we will do what is right, not what is convenient. Over time, people will know what is acceptable here and what’s not. Social memory is many times more effective than a bunch of policies.”
[1] http://www.mckinsey.com/insights/corporate_social_responsibility/confronting_corruption
[2] Managing, H. Mintzgerg, 2009. Page 9